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\begin{tabular}{l|l|} 39 & Advertising \\ \hline 40 & \\ 41 & \\ 42 & \\ 43 & \\ 44 & Equipment purchases \\ 45 & Dividends paid \\ 46 & Total disbursements \\ \hline 47 & \\ \hline 48 & Financing: \\ \hline 49 & Borrowings \\ \hline 50 & Repayments \\ 51 & Interest \\ \hline 52 & Total financing \\ \hline \end{tabular} A Total needs Less beginning inventory Required purchases Cost of purchases ( $4/ unit) Expected cash payments for merchandise purchases: Accounts payable April purchases May purchases June purchases Total cash payments Cash budget Cash balance Add collections from customers Total cash available Less disbursements: Merchandise purchases 72 Net income Earrings Unlimited Budgeted Balance Sheet 76 As of June 30 77 Assets 78 Cash 79 Accounts receivable 80 Inventory 81 Prepaid insurance 82 Property and equipment 83 Total assets 84 85 Liabilities and Stockholders' Equity 86 Accounts payable 87 Dividends payable 88 Capital stock 89 Retained earnings 90 Total liabilities and stockholders' equity The coinpany maintains a minimurn cash balance of $50,000. All borrowing is done at the beginning of a menth; any repayments are made at the end of a month. The annual interest rate is 12%. Interest is computed and paid at the end of each quarter on all loans outstanding during the quarter. Required: Prepare a master budqet for the three-month period endinq June 30. Include the following detailed budgets: 1. a. A sales budqet, by inonth and in total. b. A schedule of expected cash collections from sales, by month and in tatal. c. A merchandise purchases budqet in units and in dollars. Show the budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000. 3. A budqeted income statement for the three-month period ending June 30 . Use the contribution approach. 4. A budgeted balance sheet as of June 30 . From May sales 95 From June Sales 96 Total 97 98 Retained earnings at June 30 : 99 Balance, March 31 100 Add net income 101 Less dividends declared 102 Balance, June 30 103 104 Porperty and equipment at June 30: 105 Balance, March 31 106 Add Purchases 107 Less Depreciation 108 Balance, June 30 109 110 Account Payable at June 30: 111 From June purchases 112 1 Master Budget A B C C D E F 3 Sales Budget: 5 Budgeted unit sales April May June Quarter Selling price per unit Total sales 8 9 Schedule of expected cash collections: 10 February sales 11 March sales (70%,10%) 12 April sales (20%,70%,10%) 13 May sales (20%,70%) 14 June Sales (20\%) 15 Total cash collections 16 17 Budget merchandise purchases: 18 Budgeted unit sales 19 Add desired ending inventory A B C D E 92 Computations: Accounts receivable at June 30 From May sales From June Sales Total Retained earnings at June 30 : Balance, March 31 Add net income Less dividends declared Balance, June 30 Porperty and equipment at June 30 : Balance, March 31 Add Purchases Less Depreciation Balance, June 30 Account Payable at June 30 : You have just been hired as a new manaqement trainee by Earrinqs Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budqetinq and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show manaqement the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below. The company sells many styles of earrinqs, but all are sold for the same price- $10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings): The concentration of sales before and during May is due to Mother's Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month. Suppliers are paid $4 for a pair of earrinqs. One-half of a month's purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company are given below: Insurance is paid on an annual basis, in Novernber of each year. The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. A listing of the company's ledger accounts as of March 31 is given below: A \begin{tabular}{l|l} 53 & Cash balance, ending \\ 54 & \\ 55 & Earrings Unlimited \\ 56 & Budgeted Income Statement \\ 57 & For the Three Months Ended June 30 \end{tabular} 58 Sales revenue 59 Less variaable expenses: 60 Cost of goods sold (215,0004) Commissions 62 Contribution margin 63 Less fixed expenses 64 Advertising 65 Rent 66 Salaries 67 Utilities 68 Insurance 69 Depreciation 70 Net operating income 71 Less interest expense 7) Notincome

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