You have just been contracted as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets 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 - $10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow:
|
January (actual) |
20,000 |
|
February (actual) |
26,000 |
|
March (actual) |
40,000 |
|
April (budget) |
65,000 |
|
May (budget) |
100,000 |
|
June (budget) |
50,000 |
|
July (budget) |
30,000 |
|
August (budget) |
28,000 |
|
September (budget) |
25,000 |
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 bracelets sold in the following month.
Suppliers are paid $4 for each bracelet. 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 discounts. 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.
Please show work
| SCHEDULE OF EXPECTED CASH COLLECTIONS: | ||||||
| April | May | June | Quarter | |||
| February Sales | ||||||
| March Sales | ||||||
| April Sales | ||||||
| May Sales | ||||||
| June Sales | ||||||
| Total cash collections | ||||||
Solution:
| Sales Budget - Earrings Unlimited | ||||
| Particulars | April | May | June | Total |
| Budgeted Sales units | 65000 | 100000 | 50000 | 215000 |
| Selling price per unit | $10.00 | $10.00 | $10.00 | $10.00 |
| Total Sales | $650,000.00 | $1,000,000.00 | $500,000.00 | $2,150,000.00 |
| Schedule of expected cash collection - Earrings Unlimited | ||||
| Particulars | April | May | June | Total |
| Cash received for Feburary Sale | $26,000.00 | $26,000.00 | ||
| Cash received for March Sale | $280,000.00 | $40,000.00 | $320,000.00 | |
| Cash received for April Sale | $130,000.00 | $455,000.00 | $65,000.00 | $650,000.00 |
| Cash received for May Sale | $200,000.00 | $700,000.00 | $900,000.00 | |
| Cash received for June Sale | $100,000.00 | $100,000.00 | ||
| Budgeted Cash Collection | $436,000.00 | $695,000.00 | $865,000.00 | $1,996,000.00 |
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