FRC GROUP 2
CASE 8 - MASTER BUDGET WITH
SUPPORTING SCHEDULES
December 2024
OUR MEMBER
Chesira Rizki A. Chyntia Paramitha A.
29324019 29324097
Aurellio Fishandy Cella Chintania
29324024
29324161
Azka Rizqi F. Bagus Bagaskara
29324133 29324131
You have just been hired as a new management trainee by Earrings Unlimited, a distributor of
earrings 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):
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 $4 for a pair of earrings. 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 discount, and payable within 15 days. 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. Monthly operating expenses for the company are given below:
Insurance is paid on an annual basis, in November of each year. The company plans to purchase
$16,000 in new equipment during May and $40,000 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:
The company maintains a minimum cash balance of $50,000. All borrowing is done at the
beginning of a month; any repayments are made at the end of a month. The company has an
agreement with a bank that allows the company to borrow in increments of $1,000 at the
beginning of each month. The interest rate on these loans is 1% per month and for simplicity
we will assume 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 :
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. Determine any borrowing that would
be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June 30. Use the
contribution approach.
4. A budgeted balance sheet as of June 30.
Prepare a master budget for the three-month period ending June 30. Include the following
detailed budgets:
a. A sales budget, by month and in total.
Calculate sales budget with multiply budgeted sales in unit with selling
price per unit ($10)
April: $65.000 x $10 = $650.000
May: $100.000 x $10 = $1.000.000
June: $50.000 x $10 = $500.000
Total (Q2) = $650.000 + $1.000.000 + $500.000 = $2.150.000
Prepare a master budget for the three-month period ending June 30. Include the following
detailed budgets:
b. A schedule of expected cash collections from sales, by month and in
total.
Prepare a master budget for the three-month period ending June 30. Include the following
detailed budgets:
c. A merchandise purchases budget in units and in dollars. Show the
budget by month and in total
Note:
1. Add: Desired ending inventory calculated by multiply 40% with following budgeted sales
unit
2. Less beginning inventory filled with calculation between 40% and ending inventory in
previous month.
Prepare a master budget for the three-month period ending June 30. Include the following
detailed budgets:
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. Determine any borrowing that would
be needed to maintain the minimum cash balance of $50,000.
Merchandise Purchase amount is the amount paid
to suppliers for $4 each pair of earrings. The
amount paid is 50% of the price purchased during
the month. It is to be noted that each month, the
company must buy 40% of the supplies for the
next month and buy 60% of the supplies for the
current month.
3. A budgeted income statement for the three-month period ending June 30. Use the
contribution approach.
COGS and Sales is the total products sold during
April, May, and June with the total of 215,000
products. Since the case does not include tax,
Earnings before income tax (EBIT) is Net income
4. A budgeted balance sheet as of June 30.
Cash is from budgeted cash from the cash budget
part in previous slide. Account receivables are from
the budgeted sales which has not been paid yet
and account payables are from the purchases that
hasn’t been paid yet.
THANK YOU
FOR YOUR NICE ATTENTION
December 2024
