Case 9-30 Master Budget with Supporting Schedules
EARRINGS UNLIMITED
Minimum ending cash balance $50,000
Selling price $10
Recent and forecast sales: 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
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 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 purchase, 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 budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.XX
Click here for the solution: 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
