You have just been hired as a new management trainee by Earr

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) 23,600 June (budget)53,600 February (actual) 29,600 July (budget) 33,680 March (actual) 43,600 August (budget) 31,609 April (budget) 68,600 September (budget) 28,60e May (budget) 103,600 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 haif is paid for in the following month. All sales are on credit. Only 70% is collected in thefollowing month, and there ai ng 1 s collected in the second month wing ale Bad debts eb n of a month\'s sales are colected in the month of sale An additional (5iblee negligible Monthly operating expenses for the company are given below · Variable:

Solution

Description January February March April   May June July Sale-Quantity 23600                 29,600         43,600         68,600         103,600         53,600         33,600 Sale revenue @ 17 per pair             401,200               503,200       741,200 1,166,200      1,761,200       911,200       571,200 Cash Sale Credit Sale             401,200               503,200       741,200 1,166,200      1,761,200       911,200       571,200 Credit sale collection- same month-20%                80,240               100,640       148,240       233,240         352,240       182,240       114,240 Credit sale collection- next month-70%               280,840       352,240       518,840         816,340 1,232,840       637,840 Credit sale collection- following month-10%         40,120         50,320           74,120       116,620       176,120 Monthly sale collection               381,480       540,600       802,400      1,242,700 1,415,080       752,080 Finished Stock Opening Stock-Quanitity                 11,840         17,440         27,440           41,440         21,440         13,440 Closing Stock -40% of following month sale                11,840                 17,440         27,440         41,440           21,440         13,440                  -   Required Units= (Sale+Closing stock)                 47,040         71,040       110,040         125,040         67,040         33,600 less openign stock                 11,840         17,440         27,440           41,440         21,440         13,440 Purchase during the month                 35,200         53,600         82,600           83,600         45,600         20,160 Material purchase @ 5.8               204,160       310,880       479,080         484,880       264,480       116,928 Raw material payment- Same month-50%       155,440       239,540         242,440       132,240         58,464 Raw material payment- Next month-50%                  -         118,000         239,540       242,440       132,240 118000 taken from balance sheet Total Payment                          -         155,440       357,540         481,980       374,680       190,704 Selling commission@ 4% of sale         29,648         46,648           70,448         36,448 Fixed overhead Advertising       380,000       380,000         380,000       380,000 Rent         36,000         36,000           36,000         36,000 Salary       142,000       142,000         142,000       142,000 Utilities         16,000         16,000           16,000         16,000 Insurance            4,800           4,800              4,800           4,800 Depreciation         32,000         32,000           32,000         32,000 Total       640,448       640,448         640,448       640,448 Opening cash         92,000           68,712       159,984 Budgeted Receipts       802,400      1,242,700 1,415,080 Budgeted Cash payments Accounts payable     (357,540)       (481,980)     (374,680) Selling commission@ 4% of sale       (46,648)         (70,448)       (36,448) Fixed overhead                  -                      -                    -   Advertising     (380,000)       (380,000)     (380,000) Rent       (36,000)         (36,000)       (36,000) Salary     (142,000)       (142,000)     (142,000) Utilities       (16,000)         (16,000)       (16,000) Insurance                  -                      -                    -   Equipment         (25,000)       (58,000) Dividend payment for Q1       (28,500) Interest payment- 181000*1%*3         (5,430) Loan payment                    -       (181,000) Preliminary cash balance     (112,288)         159,984       345,506 Minimum required cash balance                  -   Borrow/(paid back)       181,000                    -                    -   Closing cash balance         68,712         159,984       345,506