Prepare master budget for the three-month period ending

Assignment Help Financial Accounting

Reference no: EM131295669

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 comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. 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—$11 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) 20,200 June (budget) 50,200 February (actual) 26,200 July (budget) 30,200 March (actual) 40,200 August (budget) 28,200 April (budget) 65,200 September (budget) 25,200 May (budget) 100,200 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 $4.1 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, with no discount, and payable within 15 days. The company has found, however, that 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 Fixed: Advertising $ 210,000 Rent $ 19,000 Salaries $ 108,000 Utilities $ 7,500 Insurance $ 3,100 Depreciation $ 15,000 Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $16,500 in new equipment during May and $41,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,750 each quarter, payable in the first month of the following quarter.

A listing of the company’s ledger accounts as of March 31 is given below: Assets Cash $ 75,000 Accounts receivable ($28,820 February sales; $353,760 March sales) 382,580 Inventory 106,928 Prepaid insurance 21,500 Property and equipment (net) 960,000 Total assets $ 1,546,008 Liabilities and Stockholders’ Equity Accounts payable $ 101,000 Dividends payable 15,750 Common stock 820,000 Retained earnings 609,258 Total liabilities and stockholders’ equity $ 1,546,008 The company maintains a minimum cash balance of $51,000. 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 $51,000 in cash.

Required: 1. Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:

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. (Round unit cost of purchases to 1 decimal place.)

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. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

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.

Reference no: EM131295669

Questions Cloud

Essay on problems mentioned into haberler : Essay should be based on one of the problems mentioned into Haberler (1950) with references to the main assumptions of the general equilibrium analysis

Why governments budget deficit might be in a large deficit : Explain why the government's budget deficit might be in a large deficit. What would the effect on aggregate demand and Gross Domestic Product (GDP) be if the government cut public spending by 10%?

Find the maximum average power available : Find the maximum average power available at the interface in the figure.- Specify the values of R and C that will extract the maximum power from the source circuit.

Entry for the collection of the note and interest : Sutherland Corporation sold goods to Rice Decorators for $75,000 on September 1, 2017, accepting Rice’s $75,000, 6-month, 6% note. Prepare Sutherland’s September 1 entry, December 31, annual adjusting entry, and March 1 entry for the collection of th..

Prepare master budget for the three-month period ending : 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..

Describe how you would control contamination : BLD 830 - You have been discussing your new "molecular prowess" and people have noticed. You have been given the opportunity to propose a molecular assay and develop a molecular laboratory

Enhance the organizational alignment of people : Explain the type of culture that will enhance the organizational alignment of people in LLB; Explain what organizational culture is and how it relates to the structure of the organization;

How do you go about this question : The two tables also provide the supplies and demands for each source and destination node. How do you go about this question?

Find the voltages v1 and v2 : Open the neutral line, that is, force IN = 0, and again find the voltages V1 and V2. What is your answer? Would your home be better protected by adding a breaker to the return line?

User Account

All Pages