### Cash Budget Preparation**Instruction:**Prepare a master budget for the three-month period ending June 30 that includes 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 $67,000. Note: Cash deficiency, repayments, and interest should be indicated by a minus sign.### Cash Budget**For the Three Months Ending June 30**#### Categories:1. **Beginning Cash Balance** - April: [ ] - May: [ ] - June: [ ] - Quarter: [ ]2. **Add Collections from Customers** - April: [ ] - May: [ ] - June: [ ] - Quarter: [ ]3. **Total Cash Available** - April: 0 - May: 0 - June: 0 - Quarter: 04. **Less Cash Disbursements:** - Merchandise Purchases - April: [ ] - May: [ ] - June: [ ] - Quarter: 0 - Advertising - Rent - Salaries - Commissions - Utilities - Equipment Purchases - Dividends Paid *(Note: All individual disbursements for months and quarter should sum up to the total cash disbursements which are calculated as 0 for illustrative purposes.)*5. **Total Cash Disbursements** - April: 0 - May: 0 - June: 0 - Quarter: 06. **Excess (Deficiency) of Cash Available Over Disbursements** - April: 0 - May: 0 - June: 0 - Quarter: 07. **Financing:** - Borrowings - Repayments - Interest8. **Total Financing** - April: 0 - May: 0 - June: 0 - Quarter: 09. **Ending Cash Balance** - April: $0 - May: $0 - June: $0 - Quarter: $0**Note:** Each category and month can be filled with relevant financial data to complete the budget. The 'Required' sections **Case Study: Budgeting and Financial Planning at Nia Artist Studio****Overview:**You have just started as an apprentice at Nia Artist Studio, responsible for distributing earrings to various retail outlets nationwide. Historically, the company has struggled with budgeting and faced cash shortages. You have been tasked with preparing a budget for the upcoming second quarter.**Sales Projections:**- Earrings are sold at $16 per pair.- Actual sales for the first three months and budgeted sales for the next six months (in pairs) are as follows: | Month | Sales (pairs) | |-------------|---------------| | January | 23,400 | | February | 29,400 | | March | 68,400 | | April | 53,400 | | May | 33,400 | | June | 31,400 | | July | 30,400 | | August | 31,400 | | September | 28,400 |**Inventory Management:**- Sufficient inventory to cover 40% of the next month's sales should be maintained.- Earrings cost $5.70 per pair from suppliers.- Purchase payments are split: half in the month of purchase, half in the following month.- Sales are on credit: 20% collected in the sale month, 70% in the next, and 10% in the second month following.**Operating Expenses:**- Variable: Sales commissions (4% of sales)- Fixed: - Advertising: $370,000 - Rent: $35,000 - Salaries: $140,000 - Utilities: $15,500 - Insurance: $4,700 (annual payment in November) - Depreciation: $31,000**Planned Purchases:**- Equipment: $24,500 in May and $57,000 in June (cash purchases)**Dividends:**- $27,750 each quarter, payable in the first month of the next quarter.**Balance Sheet (as of March 31):**- **Assets:** - Cash: $91,000 - Accounts Receivable: $602,560 - Inventory: $165,552 - Prepaid Insurance: $2,900

A cash budget is prepared to estimate expected cash payments, cash collection, and ending cash balance. It also determines the required cash financing. The components of a cash budget include a cash collection schedule and a cash payment schedule.Cash Collection Schedule: Cash Collection ScheduleParticularsAprilMayJuneTotalSales Units (a)68,4001,03,40053,4002,25,200Selling Price Per Unit (b)$16$16$16$16Total Sales Value (c = a x b)$1,094,400$1,654,400$854,400$3,603,200Collection during the current Month (a x 20%)$218,880$330,880$170,880$7,20,640Total Cash Expected to be collected from Credit SalesCash Collection:Add: February Sales$47,040$0$0$47,040Add: March Sales ($555,520 x 70%/80%); ($555,520 x 10%/80%)$486,080$69,440$0$555,520Add: April Sales $0$766,080$109,440$875,520Add: May Sales $0$0$1,158,080$1,158,080Total cash collection $752,000$1,166,400$1,438,400$3,356,800Purchases Budget: Purchase BudgetParticularsAprilMayJuneTotalJuneSales Units68,4001,03,40053,4002,25,20053,400Purchase Cost Per Unit$5.70$5.70$5.70$5.70$5.70Required Cost of Sales$389,880$589,380$304,380$1,283,640$304,380Ending Inventory, 40% of Next Month's Cost of Goods Sold$235,752$121,752$121,752$121,752Add: Cost of Goods Sold$389,880$589,380$304,380$1,283,640Less: Beginning Inventory$155,952$235,752$121,752$155,952Required Purchases$469,680$475,380$304,380$1,249,440Schedule for Cash Payment:Cash Payment ScheduleParticularsAprilMayJuneTotalBeginning Accounts Payable$117,000$234,840$237,690$117,000Add: Purchases$469,680$475,380$304,380$1,249,440Less: Ending Accounts Payable, 50% of Purchases$234,840$237,690$152,190$152,190Cash Payment to Suppliers$351,840$472,530$389,880$1,214,250Cash Budget: Cash BudgetParticularsAprilMayJuneQuarterBeginning Cash Balance$91,000$67,134$1,09,828$91,000Add: Total Collections from Customers$752,000$1,166,400$1,438,400$3,356,800Total available cash$843,000$1,233,534$1,548,228$3,447,800Less: Cash DisbursementsMerchandise Purchase$351,840$472,530$389,880$1,214,250Advertising$370,000$370,000$370,000$1,110,000Rent$35,000$35,000$35,000$105,000Salaries$140,000$140,000$140,000$420,000Commission, @ 4% of Sales Value$43,776$66,176$34,176$144,128Utilities$15,500$15,500$15,500$46,500Equipment Purchases$0$24,500$57,000$81,500Dividends Paid$27,750$0$0$27,750Total Cash Disbursements$983,866$1,123,706$1,041,556$3,149,128Excess (Deficiency) of Cash over disbursements-$140,866$109,828$506,672$298,672Financing:Borrowings$208,000$0$0$208,000Repayments$0$0$208,000$208,000Interest$0$0$6,240$6,240Total Financing $208,000$0$0$208,000Ending Cash Balance$67,134$109,828$292,432$292,432

Business

Accounting

You have just started as an apprentice at Nia Artist Studio, 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 Because 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-$16 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings): 23,400 June (budget) 29.400 July (budget) 43,400 August (budget) 68,400 September (budget) 53.400 33,400 31,400 28.400 103,400 January (actual) February (actual) March (actual) April (budget) May (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 $5.70 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% are collected in the following month, and the remaining 10% are collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company are given below: Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation Insurance is paid on an annual basis, in November of each year. The company plans to purchase $24,500 in new equipment during May and $57,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $27,750 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: Assets Cash 4% of sales Prepaid insurance Property and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable $ 370,000 $ 35,000 Common stock Retained earnings Total liabilities and stockholders' equity $ 140,000 $ 15,500 Accounts receivable ($47,040 February sales; $555,520 March sales) Inventory $4,700 $ 31,000 $ 91,000 602,560 155,952 29,500 1,120,000 $ 1,999,012 $ 117,000 27,750 1,140,000 714,262 $ 1,999,012 The company maintains a minimum cash balance of $67,000. 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 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 $67,000 in cash.