CASE 09-30 Earrings Unlimited – EXCEL TEMPLATE

| January 30, 2017

Question
CASE 09-30 Earrings Unlimited – EXCEL TEMPLATE
You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earring 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- $10 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)… 20,000 June (budget)… 60,000February (actual)… 26,000 July (budget)… 30,000March (actual)… 40,000 August (budget … 28,000April (budget)… 75,000 September (budget) 25,000May (budget)… 90,000The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should beon hand at the end of each month to supply 40% of the earrings sold in the following month.Suppliers are paid $5 for a pair of earrings. One-half of a month’s purchases are paid for in the month ofpurchase; the other half is paid for in the following month. All sales are on credit, with no discount, andpayable within 15 days. The company has found, however, that only 30% of a month’s sales are collected \in the month of sale. An additional 60% 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 salesFixed:
Advertising…………………$180,000
Rent…………………………..20,000
Salaries……………………110,000
Utilities…………………….7,000
Insurance expired……….5,000depreciation……………..15,000

Insurance is paid on an annual basis, in November of each year.The company plans to purchase $10,000 in new equipment during May and $25,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 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…………………………………………………………………..$ 74,000Accounts Receivable($26,000 February sales; $320,000March Sales)…………………………… 346,000Inventory……………………………………………………………. 104,000Prepaid insurance………………………………………………… 21,000Property and equipment(net)………………………………… 950,000Total Assets……………………………………………………….. $1,495,000
Liabilities and Stockholders’ EquityAccounts Payable…………………………………………………$ 100,000Dividends Payable………………………………………………… 15,000Capital stock……………………………………………………….. 800,000Retained Earnings………………………………………………… 580,000Total liabilities and stockholders’ equity $1,495,000Part of the use of the budgeting program will be to establish an ongoing line of credit at a local bank. Therefore, determine the borrowing that will be needed to maintain a minimum cash balance of $50,000. All borrowing will be done at the beginning of a month; any repayments will be made at the end of the month. The annual interest rate will be 8%. Interest will be computed and paid at the end of each quarter on all loans outstanding during the quarter. Compute interest on whole months(1/12, 2/12, and so forth).Required
Prepare a master budget for the three-month period ending June 30. Include the following detailedbudgets:

1. a. A sales budget, by month and in totalb. 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 purchases, by month and in total.
2. A cash budget. Show the budget by month and in total.

Get a 30 % discount on an order above $ 50
Use the following coupon code:
COCONUT
Order your essay today and save 30% with the discount code: COCONUTOrder Now
Positive SSL