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)... 60,000
February
(actual)... 26,000 July (budget)... 30,000
March
(actual)... 40,000 August (budget ... 28,000
April
(budget)... 75,000 September (budget) 25,000
May
(budget)... 90,000
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 for a pair of earrings. One-half of a month’s purchases
are 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 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 sales
Fixed:
Advertising.....................$180,000
Rent................................20,000
Salaries........................110,000
Utilities.........................7,000
Insurance expired..........5,000
Advertising.....................$180,000
Rent................................20,000
Salaries........................110,000
Utilities.........................7,000
Insurance expired..........5,000
depreciation.................15,000
Insurance is paid on an annual basis, in November of each year.
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 $15,000 each quarter, payable in the first month of the
following quarter.
A listing of the company’s ledger accounts as of March 31 is given below:
Assets
Cash.............................................................................$ 74,000
Cash.............................................................................$ 74,000
Accounts
Receivable($26,000 February sales; $320,000
March
Sales)................................. 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
Part 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 detailed budgets:
1. a. A sales budget, by month and in total
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 purchases, by month
and in total.
2. A cash budget. Show the budget by month and in total.
SOLUTION PREVIEW - EXCEL TEMPLATE
|
65,000
|
100,000
|
50,000
|
215,000
|
|
$10
|
$10
|
$10
|
$10
|
|
$650,000
|
$1,000,000
|
$500,000
|
$2,150,000
|
File name: Case-9-30-Earrings-Unlimited.xls File type: application/vnd.ms-excel Price:
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