Case 8-31

1. a. A sales budget, by month and in total.

April May June Quarter
Budgeted unit sales 65,000 100,000 50,000 215,000
SP per unit 10 10 10 10
Total Sales 650,000 1,000,000 500,000 2,150,000

b. A schedule of expected cash collections from sales, by month and in total.

April May June Quarter
Febraury Sales (10%) 26,000 26,000
March Sales (70%, 10%) 280,000 40,000 320,000
April Sales (20%, 70%, 10%) 130,000 455,000 65,000 650,000
May Sales (20%, 70%) 200,000 700,000 900,000
June Sales (20%) 100,000 100,000
Total Cash Collections 436,000 695000 865000 1,996,000

c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
April May June Quarter
Budgeted Unit Sales 65,000 100,000 50,000 215,000
Add: Desired Ending Finished
40,000 20,000 12,000 12,000
Goods Inventory
Total Needs 105,000 120,000 62,000 227,000
Less: Beginning Finished Goods
26,000 40,000 20,000 26,000
Inventory
Required Production 79,000 80,000 42,000 201,000
Cost of Production @ 4 per unit 316000 320000 168000 804000

d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
April May June Quarter
Accounts Payable 100,000 100,000
April Purchases 158,000 158,000 316,000
May Purchases 160,000 160,000 320,000
June Purchases 84,000 84,000
Total Cash Disbursements 258,000 318000 244000 820,000

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to
maintain the minimum cash balance of $50,000.
Earrings Unlimited
Cash Budget
For the Three Months Ending June 30
April May June Quarter
Beginning Cash Balance 74,000 50,000 50,000 74,000
Add Cash Receipts:
Collections From Customers 436,000 695,000 865,000 1,996,000
Total Cash Available 510,000 745,000 915,000 2,070,000
Less Cash Disbursements:
Merchandise Purchases 258,000 318,000 244,000 820,000
Advertising 200,000 200,000 200,000 600,000
Rent 18,000 18,000 18,000 54,000
Salaries 106,000 106,000 106,000 318,000
Commissions 26,000 40,000 20,000 86,000
Utilities 7,000 7,000 7,000 21,000
Equipment Purchases 0 16,000 40,000 56000
Divdends Paid 15,000 0 0 15,000
Total Cash Disbursements 630,000 705,000 635,000 1,970,000
Excess (deficiency) of cash available
-120,000 40,000 280,000 100,000
over disbursements
Financing:
Borrowings 170,000 10,000 0 180,000
Repayments 0 0 -180,000 -180000
Interest (170k * 1% * 3) + (10k
-5300
* 1% * 2 0 0 -5,300
 Total Financing 170,000 10,000 -185300 -5,300
Ending Cash Balance 50,000 50,000 94,700 94,700

3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
Earrings Unlimited
Budgeted Income Statement
For the Three Months Ended June 30
Sales 2,150,000
Variable Expenses:
Cost of Goods Sold (4 per unit) 860,000
Commissions 4% of sales 86,000 946,000
Contribution Margin 1,204,000
Fixed Expenses:
Advertising (200k * 3) 600,000
Rent (18k * 3) 54,000
Salaries (106k * 3) 318,000
Utilities (7k * 3) 21,000
Insurance (3k * 3) 9,000
Depreciation (14k * 3) 42,000 1,044,000
Net Operating Income 160,000
Interest Expense 5,300
Net Income 154,700

4. A budgeted balance sheet as of June 30.

Earrings Unlimited
Budgeted Balance Sheet
June 30

Assets
Cash 94,700
Accounts Receivable (1M * 10% + 500k * 80%) 500,000
Inventory 48,000
Prepaid Insurance 12,000
Property and Equipment, net 964,000
Total Assets 1,618,700

Liabilities and Stockholders’ Equity

Accounts Payable, purchases 84,000
Dividends Payable 15,000
Common Stock 800,000
Retained Earnings (580k + 154.7k - 15k) 719,700
Total Liabilities and Stockholders’ Equity 1,618,700