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EARRINGS UNLIMITED
Minimum ending cash balance	$50,000
Selling price	$10
Recent and forecast sales (in units):
January (actual)	20,000
February (actual)	26,000
March (actual)	40,000
April	65,000
May	100,000
June	50,000
July	30,000
August	28,000
September	25,000
Desired ending inventories (percentage	40%
of next month's sales)
Cost of earrings	$ 4
Purchases paid as follows:
In month of purchase	50%
In following month	50%
Collection on sales:
Sales collected current month	20%
Sales collected following month	70%
Sales collected 2nd month following	10%
Variable monthly expenses:
Sales commissions (% of sales)	4%
Fixed monthly expenses:
Advertising	$ 200,000
Rent	$ 18,000
Salaries	$ 106,000
Utilities	$ 7,000
Insurance (12 months paid in November)	$ 3,000
Depreciation	$ 14,000
Equipment purchased in May	$ 16,000
Equipment purchased in June	$ 40,000
Dividends declared each quarter	$ 15,000
Balance sheet at March 31:
Assets
Cash	$74,000
Accounts receivable	346,000
Inventory	104,000
Prepaid insurance	21,000
Property and equipment (net)	950,000
Total assets	$1,495,000
Liabilities and Stockholders' Equity
Accounts payable	$100,000
Dividends payable	15,000
Capital stock	800,000
Retained earnings	580,000
Total liabilities and stockholders' equity	$1,495,000
Agreement with Bank:
Borrowing increments	$1,000
Interest rate per month	1%
Repayment increments	$1,000
Total of interest paid each quarter	100%
Required minimum cash balance	$50,000 Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: A sales budget, by month and in total. A schedule of expected cash collections from sales, by month and in total. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 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. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. A budgeted balance sheet as of June 30. //Comment: I know that this has been answered on chegg but I would really like to know how they got to the calculations of the solutions. How the problem was solved. Thanks in advance!

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