You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets locate in shopping malls across the country. In the past, the company has done very little in the way of budgeting 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 a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below. The company sells many styles of earrings, but all are sold for the same price-$17 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings): January (actual) February (actual) March (actual) April (budget) May (budget) 23,600 June (budget) 29,600 43,600 68,600 103,600 July (budget) August (budget) September (budget) 53,600 33,600 31,600 28,600 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 $5.80 for a pair of earrings. 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. 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 beer negligible. Monthly operating expenses for the company are given below: Variable: Sales commissions 4x of sales Fixed: Advertising Rent Salaries utilities Insurance Depreciation $ 380, e00 $ 36,000 $ 142,000 $ 16,000 $ 4,800 $ 32,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $25,000 in new equipment during May and $58,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $28,500 each quarter, payable in the first month of the following quarter.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Prepare a
![Case 8-33 (Algo) Master Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]
You have just been hired as a new management trainee by Earrings 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 budgeting 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 a master budget for
the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled
below.
The company sells many styles of earrings, but all are sold for the same price-$17 per pair. Actual sales of earrings for the last three
months and budgeted sales for the next six months follow (in pairs of earrings):
January (actual)
February (actual)
March (actual)
April (budget)
May (budget)
23, 600 June (budget)
29,600 July (budget)
43,600
68,600
103,600
53,600
33,600
31,600
28,600
August (budget)
September (budget)
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 S5.80 for a pair of earrings. 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. 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:
Variable:
Sales commissions
4% of sales
F1
d:
$ 380,000
36,000
$ 142,000
$ 16,000
$ 4,800
$ 32,000
Advertising
Rent
Salaries
Utilities
Insurance
Depreciation
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $25,000 in new equipment during May and $58,000 in new equipment during June; both purchases
will be for cash. The company declares dividends of $28,500 each quarter, payable in the first month of the following quarter.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F43ee94ef-72d6-420b-afde-dad6101e81bf%2F6e01ab83-9fd2-4cb1-b13e-02a4f0820994%2Fegfnwj2_processed.png&w=3840&q=75)
![The company's balance sheet as of March 31 is given below:
Assets
Cash
92,000
Accounts receivable ($50, 320 February sales; $592,960
March sales)
Inventory
Prepaid insurance
Property and equipnent (net)
Total assets
643,280
159,152
s0,000
1,130,000
$ 2,054,432
Liabilities and Stockholders' Equity
Accounts payable
Dividends payable
Common stock
Retained earnings
Total liabilities and stockholders' equity
118,000
28, see
1,160,000
747,932
$ 2,054,432
The company maintains a minimum cash balance of $68,000. All borrowing is done at the beginning of a month; any repayments are
made at the end of a month.
The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each
month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end
of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in
increments of $1.000), while still retaining at least $68,000 in cash.
Required:
Prepare a master budget for the three-month period ending June 30. 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 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 S68,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.
Complete this question by entering your answers in the tabs below.
Reg 1A
Reg 18
Reg 10
Reg 10
Reg 2
Req 3
Reg 4
Prepare a master budget for the three-month period ending June 30 that includes a merchandise purchases budget in units
and in dollars. Show the budget by month and in total. (Round unit cost to 2 decimal places.)
Earrings Unlimited
Merchandise Purchases Budget
April
May
June
Quarter
Budgeted unit sales
Total needs
Required purchases
ol
Unit cost
Required dollar purchases](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F43ee94ef-72d6-420b-afde-dad6101e81bf%2F6e01ab83-9fd2-4cb1-b13e-02a4f0820994%2F3pilltl_processed.png&w=3840&q=75)
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The quarter in E5 is not found by adding B5,C5,D5. How do I actially find the quarter?
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