You have just been hired as a new management trainee by EarringsUnlimited, a distributor of earring to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash.
Since you are well trained in budgeting, you have decided toprepare comprehensive budgets for the upcoming second quarter inorder to show management the benefits that can be gained from anintegrated budgeting program. To this end, you have worked withaccounting and other areas to gather the information assembledbelow.
The company sells many styles of earrings, but all are sold for thesame price- $10 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):
January (actual)... 20,000 June (budget)... 50,000
February (actual)... 26,000 July (budget)... 30,000
March (actual)... 40,000 August (budget ... 28,000
April (budget)... 65,000 September (budget) 25,000
May (budget)... 100,000
The concentration of sales before and during May is due to Mother�sDay. Sufficient inventory should be on hand at the end of eachmonth to supply 40% of the earrings sold in the followingmonth.
Suppliers are paid $4 for a pair of earrings. One-half of a month�spurchases are paid for in the month of purchase; the other half ispaid for in the following month. All sales are on credit, with nodiscount, and payable within 15 days. The company has found,however, that only 20% of a month�s sales are collected in themonth of sale. An additional 70% is collected in the followingmonth, and the remaining 10% is collected in the second monthfollowing sale. Bad debts have been negligible.
Monthly operating expenses for the company are given below:
Variable:
Sales commissions..................4% of sales
Fixed:
Advertising.....................$200,000
Rent................................18,800
Salaries........................106,000
Utilities.........................7,000
Insurance......................3,000
depreciation.................14,000
Insurance is paid on an annual basis, in November of eachyear.
The company plans to purchase $16,000 in new equipment during Mayand $40,000 in new equipment during June; both purchases will befor 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 givenbelow:
Assets
Cash.............................................................................$74,000
Accounts Receivable($26,000 February sales; $320,000
March Sales)................................. 346,000
Inventory......................................................................104,000
Prepaidinsurance.........................................................21,000
Property and equipment(net).......................................950,000
TotalAssets.................................................................$1,495,000
Liabilities and Stockholders� Equity
AccountsPayable.........................................................$100,000
DividendsPayable.........................................................15,000
Capitalstock.................................................................800,000
RetainedEarnings.........................................................580,000
Total liabilities and stockholders� equity $1,495,000
The company maintains a minimum cash balance of $50,000. Allborrowing is done at the beginning of a month; any repayments aremade at the end of a month.
The company has an agreement with a bank that allows the company toborrow in increments of $1,000 at the beginning of each month. Theinterest rate on these loans is 1% per month and for simplicity wewill assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $50,000 incash.
Prepare a master budget for the three-month period ending June 30.Include the following detailed budgets:
Required
Prepare a master budget for the three-month period ending June 30.Include the following detailed budgets:
1. a. A sales budget, by month and in total
b. A schedule of expected cash collections from sales, by month andin total.
c. A merchandise purchases budget in units and in dollars. Show thebudget by month and in total.
d. A schedule of expected cash disbursements for merchandisepurchases, by month and in total.
2. A cash budget. Show the budget by month and in total.
3. A budgeted income statement for the three-month period endingJune 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30
You have just been hired as a new management trainee by EarringsUnlimited, a distributor of earring to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash.
Since you are well trained in budgeting, you have decided toprepare comprehensive budgets for the upcoming second quarter inorder to show management the benefits that can be gained from anintegrated budgeting program. To this end, you have worked withaccounting and other areas to gather the information assembledbelow.
The company sells many styles of earrings, but all are sold for thesame price- $10 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):
January (actual)... 20,000 June (budget)... 50,000
February (actual)... 26,000 July (budget)... 30,000
March (actual)... 40,000 August (budget ... 28,000
April (budget)... 65,000 September (budget) 25,000
May (budget)... 100,000
The concentration of sales before and during May is due to Mother�sDay. Sufficient inventory should be on hand at the end of eachmonth to supply 40% of the earrings sold in the followingmonth.
Suppliers are paid $4 for a pair of earrings. One-half of a month�spurchases are paid for in the month of purchase; the other half ispaid for in the following month. All sales are on credit, with nodiscount, and payable within 15 days. The company has found,however, that only 20% of a month�s sales are collected in themonth of sale. An additional 70% is collected in the followingmonth, and the remaining 10% is collected in the second monthfollowing sale. Bad debts have been negligible.
Monthly operating expenses for the company are given below:
Variable:
Sales commissions..................4% of sales
Fixed:
Advertising.....................$200,000
Rent................................18,800
Salaries........................106,000
Utilities.........................7,000
Insurance......................3,000
depreciation.................14,000
Insurance is paid on an annual basis, in November of eachyear.
The company plans to purchase $16,000 in new equipment during Mayand $40,000 in new equipment during June; both purchases will befor 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 givenbelow:
Assets
Cash.............................................................................$74,000
Accounts Receivable($26,000 February sales; $320,000
March Sales)................................. 346,000
Inventory......................................................................104,000
Prepaidinsurance.........................................................21,000
Property and equipment(net).......................................950,000
TotalAssets.................................................................$1,495,000
Liabilities and Stockholders� Equity
AccountsPayable.........................................................$100,000
DividendsPayable.........................................................15,000
Capitalstock.................................................................800,000
RetainedEarnings.........................................................580,000
Total liabilities and stockholders� equity $1,495,000
The company maintains a minimum cash balance of $50,000. Allborrowing is done at the beginning of a month; any repayments aremade at the end of a month.
The company has an agreement with a bank that allows the company toborrow in increments of $1,000 at the beginning of each month. Theinterest rate on these loans is 1% per month and for simplicity wewill assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $50,000 incash.
Prepare a master budget for the three-month period ending June 30.Include the following detailed budgets:
Required
Prepare a master budget for the three-month period ending June 30.Include the following detailed budgets:
1. a. A sales budget, by month and in total
b. A schedule of expected cash collections from sales, by month andin total.
c. A merchandise purchases budget in units and in dollars. Show thebudget by month and in total.
d. A schedule of expected cash disbursements for merchandisepurchases, by month and in total.
2. A cash budget. Show the budget by month and in total.
| 3. A budgeted income statement for the three-month period endingJune 30. Use the contribution approach. 4. A budgeted balance sheet as of June 30 |
Related questions
You have just been hired as a new management trainee by EarringsUnlimited, a distributor of earrings to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash. Since you arewell trained in budgeting, you have decided to prepare a masterbudget for the upcoming second quarter. To this end, you haveworked with accounting and other areas to gather the informationassembled below.
The company sells many styles of earrings, but all are sold forthe same priceâ$15 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):
| January(actual) | 21,800 | June (budget) | 51,800 |
| February (actual) | 27,800 | July (budget) | 31,800 |
| March (actual) | 41,800 | August (budget) | 29,800 |
| April (budget) | 66,800 | September (budget) | 26,800 |
| May (budget) | 101,800 | ||
The concentration of sales before and during May is due toMotherâs Day. Sufficient inventory should be on hand at the end ofeach month to supply 40% of the earrings sold in the followingmonth.
Suppliers are paid $4.90 for a pair of earrings. One-half of amonthâs purchases is paid for in the month of purchase; the otherhalf is paid for in the following month. All sales are on credit.Only 20% of a monthâs sales are collected in the month of sale. Anadditional 70% is collected in the following month, and theremaining 10% is collected in the second month following sale. Baddebts have been negligible.
Monthly operating expenses for the company are given below:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 290,000 | |
| Rent | $ | 27,000 | |
| Salaries | $ | 124,000 | |
| Utilities | $ | 11,500 | |
| Insurance | $ | 3,900 | |
| Depreciation | $ | 23,000 | |
Insurance is paid on an annual basis, in November of eachyear.
The company plans to purchase $20,500 in new equipment duringMay and $49,000 in new equipment during June; both purchases willbe for cash. The company declares dividends of $21,750 eachquarter, payable in the first month of the following quarter.
The companyâs balance sheet as of March 31 is given below:
| Assets | ||
| Cash | $ | 83,000 |
| Accounts receivable ($41,700February sales; $501,600 March sales) | 543,300 | |
| Inventory | 130,928 | |
| Prepaid insurance | 25,500 | |
| Property and equipment(net) | 1,040,000 | |
| Total assets | $ | 1,822,728 |
| Liabilitiesand Stockholdersâ Equity | ||
| Accounts payable | $ | 109,000 |
| Dividends payable | 21,750 | |
| Common stock | 980,000 | |
| Retained earnings | 711,978 | |
| Total liabilities andstockholdersâ equity | $ | 1,822,728 |
The company maintains a minimum cash balance of $59,000. Allborrowing is done at the beginning of a month; any repayments aremade at the end of a month.
The company has an agreement with a bank that allows the companyto borrow in increments of $1,000 at the beginning of each month.The interest rate on these loans is 1% per month and for simplicitywe will assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $59,000 incash.
Required:
Prepare a master budget for the three-month period ending June30. Include the following detailed schedules:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections,by month and in total.
c. A merchandise purchases budget in unitsand in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursementsfor 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 theminimum cash balance of $59,000.
3. A budgeted income statement for the three-month period endingJune 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.
You have just been hired as a new management trainee by EarringsUnlimited, a distributor of earrings to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash. Since you arewell trained in budgeting, you have decided to prepare a masterbudget for the upcoming second quarter. To this end, you haveworked with accounting and other areas to gather the informationassembled below.
The company sells many styles of earrings, but all are sold forthe same priceâ$14 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):
| January(actual) | 21,600 | June (budget) | 51,600 |
| February (actual) | 27,600 | July (budget) | 31,600 |
| March (actual) | 41,600 | August (budget) | 29,600 |
| April (budget) | 66,600 | September (budget) | 26,600 |
| May (budget) | 101,600 | ||
The concentration of sales before and during May is due toMotherâs Day. Sufficient inventory should be on hand at the end ofeach month to supply 40% of the earrings sold in the followingmonth.
Suppliers are paid $4.80 for a pair of earrings. One-half of amonthâs purchases is paid for in the month of purchase; the otherhalf is paid for in the following month. All sales are on credit.Only 20% of a monthâs sales are collected in the month of sale. Anadditional 70% is collected in the following month, and theremaining 10% is collected in the second month following sale. Baddebts have been negligible.
Monthly operating expenses for the company are given below:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 280,000 | |
| Rent | $ | 26,000 | |
| Salaries | $ | 122,000 | |
| Utilities | $ | 11,000 | |
| Insurance | $ | 3,800 | |
| Depreciation | $ | 22,000 | |
Insurance is paid on an annual basis, in November of eachyear.
The company plans to purchase $20,000 in new equipment duringMay and $48,000 in new equipment during June; both purchases willbe for cash. The company declares dividends of $21,000 eachquarter, payable in the first month of the following quarter.
The companyâs balance sheet as of March 31 is given below:
| Assets | ||
| Cash | $ | 82,000 |
| Accounts receivable ($38,640February sales; $465,920 March sales) | 504,560 | |
| Inventory | 127,872 | |
| Prepaid insurance | 25,000 | |
| Property and equipment(net) | 1,030,000 | |
| Total assets | $ | 1,769,432 |
| Liabilitiesand Stockholdersâ Equity | ||
| Accounts payable | $ | 108,000 |
| Dividends payable | 21,000 | |
| Common stock | 960,000 | |
| Retained earnings | 680,432 | |
| Total liabilities andstockholdersâ equity | $ | 1,769,432 |
The company maintains a minimum cash balance of $58,000. Allborrowing is done at the beginning of a month; any repayments aremade at the end of a month.
The company has an agreement with a bank that allows the companyto borrow in increments of $1,000 at the beginning of each month.The interest rate on these loans is 1% per month and for simplicitywe will assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $58,000 incash.
Required:
Prepare a master budget for the three-month period ending June30. Include the following detailed schedules:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections,by month and in total.
c. A merchandise purchases budget in unitsand in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursementsfor 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 theminimum cash balance of $58,000.
3. A budgeted income statement for the three-month period endingJune 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.
You have just been hired as a new management trainee by EarringsUnlimited, a distributor of earrings to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash. Since you arewell trained in budgeting, you have decided to prepare a masterbudget for the upcoming second quarter. To this end, you haveworked with accounting and other areas to gather the informationassembled below.
The company sells many styles of earrings, but all are sold forthe same priceâ$20 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):
| January (actual) | 23,200 | June(budget) | 53,200 |
| February(actual) | 29,200 | July(budget) | 33,200 |
| March(actual) | 43,200 | August(budget) | 31,200 |
| April(budget) | 68,200 | September(budget) | 28,200 |
| May(budget) | 103,200 | ||
The concentration of sales before and during May is due toMotherâs Day. Sufficient inventory should be on hand at the end ofeach month to supply 40% of the earrings sold in the followingmonth.
Suppliers are paid $5.60 for a pair of earrings. One-half of amonthâs purchases is paid for in the month of purchase; the otherhalf is paid for in the following month. All sales are on credit.Only 20% of a monthâs sales are collected in the month of sale. Anadditional 70% is collected in the following month, and theremaining 10% is collected in the second month following sale. Baddebts have been negligible.
Monthly operating expenses for the company are given below:
| Variable: | |||
| Salescommissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 360,000 | |
| Rent | $ | 34,000 | |
| Salaries | $ | 138,000 | |
| Utilities | $ | 15,000 | |
| Insurance | $ | 4,600 | |
| Depreciation | $ | 30,000 | |
Insurance is paid on an annual basis, in November of eachyear.
The company plans to purchase $24,000 in new equipment duringMay and $56,000 in new equipment during June; both purchases willbe for cash. The company declares dividends of $27,000 eachquarter, payable in the first month of the following quarter.
The companyâs balance sheet as of March 31 is given below:
| Assets | ||
| Cash | $ | 90,000 |
| Accountsreceivable ($58,400 February sales; $691,200 March sales) | 749,600 | |
| Inventory | 152,768 | |
| Prepaidinsurance | 29,000 | |
| Property andequipment (net) | 1,110,000 | |
| Totalassets | $ | 2,131,368 |
| Liabilities and Stockholdersâ Equity | ||
| Accountspayable | $ | 116,000 |
| Dividendspayable | 27,000 | |
| Commonstock | 1,120,000 | |
| Retainedearnings | 868,368 | |
| Totalliabilities and stockholdersâ equity | $ | 2,131,368 |
The company maintains a minimum cash balance of $66,000. Allborrowing is done at the beginning of a month; any repayments aremade at the end of a month.
The company has an agreement with a bank that allows the companyto borrow in increments of $1,000 at the beginning of each month.The interest rate on these loans is 1% per month and for simplicitywe will assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $66,000 incash.
Required:
Prepare a master budget for the three-month period ending June30. Include the following detailed schedules:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections,by month and in total.
c. A merchandise purchases budget in unitsand in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursementsfor 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 theminimum cash balance of $66,000.
3. A budgeted income statement for the three-month period endingJune 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.
