You have just hired as a new management trainee by earrings

Assignment Help Financial Accounting

Reference no: EM13370367

You have just hired as a new management trainee by Earrings Unlimited, a distributor of earrings to different retail outlets located in shopping malls across the country. In the past, the company has done very little in way of budgeting and at convinced times of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have determined to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that will be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather information assembled below.
The company sells many styles of earrings, but all are sold for similar price-$10 per pair. Actual sales of earrings for last three months and budgeted sales for the next six months follow:

The concentration of sales before and in May is due to Mother's Day. Sufficient inventory should be on hand at end of each month to supply 40 percent of the earrings sold in the subsequent month.
Suppliers are paid $4 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase; other half is paid for in the subsequent month. All sales are on credit, with no discount, and payable within 15 days. The company has found, thus, that only 20 percent of a month's sales are collected in the month of sale. An additional 70 percent is collected in the subsequent month, and the remaining 10% is collected in the second month subsequent sale. Bad debts have been negligible.
Monthly operating expenses for the company are provided below:

Insurance is paid on an annual basis, in November of every year.
The company plans to purchase $16,000 in new equipment in May and $40,000 in new equipment during June; both purchases can be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the subsequent quarter.
A listing of the company's ledger accounts as of March 31 is provided below:

The Corporation maintains a minimum cash balance of $50,000. All borrowing is done at the starting of a month; any repayments are made at the end of a month.
The company has an agreement with a bank that allows company to borrow in increments of $1,000 at the starting of each month. The interest rate on these loans is 1% per month and for simplicity we will consider 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 $50,000 in cash.

Required:

Create a master budget for the three-month period ending June 30. Include the subsequent 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 purchases, by month and in total.

2. A cash budget. demonstrate the budget by month and in total. Evaluate any borrowing that would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.

Reference no: EM13370367

Questions Cloud

The strength of it controls will evaluate whether the : the strength of it controls will evaluate whether the system encourages or hinders ethical behavior. while most

People will do something in their self interest as a matter : people will do something in their self interest. as a matter of fact a marketplace economy depends on self interest to

Grate care company specializes in producing products for : grate care company specializes in producing products for individual grooming. the company operates six divisions adding

Define the receiables and what is the net income is there a : define the receiables and what is the net income. is there a way to get a reference to go by to know how to answer the

You have just hired as a new management trainee by earrings : you have just hired as a new management trainee by earrings unlimited a distributor of earrings to different retail

You have been put in charge of accounts receivable : you have been put in charge of accounts receivable confirmation process. you have been asked to prepare a memo

1 financial statement analysis a is application of : 1. financial statement analysis a. is application of analytical tools to general-purpose financial statements and

What accounting factors are important before determining : what accounting factors are important before determining whether a pending lawsuit should be accrued as a liability and

The four seasons resort community is an stylish thriving : the four seasons resort community is an stylish thriving four-season resort and a community of over 1200 single family

User Account

All Pages