MASTER BUDGET ASSIGNMENT SOLUTION

A. Calculate a sales budget for the second quarter (monthly and in total).

Sales budget:
April May June Total
Budgeted unit sales................. 68,400 103,400 53,400 225200
Selling price per unit...............     × Br.16        × Br.16     × Br.16        × Br.16
Total sales................................ Br.1094,400 Br.1654,400 Br.854,400 Br.3,603,200

B. Calculate a Purchases budget (monthly and in total).

purchases budget:
April May June Total
Budgeted unit 68,400 103,400 53,400 225200
sales
Add desired 41,360 21,360 13,360 13,360
ending
merchandise
inventory
(40% of the
following
month’s unit
sales).
Total needs 109,760 124,760 66,760 238,560
Less beginning 27,360 41,360 21,360 27,360
inventory
Required 82,400 83,400 45,400 211,200
purchases(In
units)
Cost of Br.5.70 Br.5.70 Br.5.70 Br.5.70
purchases per
unit
budgeted Br.469,680 Br.475,380 Br.258,780 Br. 1, 203,840
Purchases(In
birr)

1
C. Calculate a direct labor budget. (Monthly and in total).

Schedule of Labor budget

April May June Total
Units to be produced 82,400 83,400 45,400 211,200
Direct labor hours per units Br.0.6 Br.0.6 Br.0.6 Br.555,520
Total direct labor-hours
49,440 50,040 27,240 126,720
needed
Direct labor cost per hour Br.16 Br.16 Br.16 Br.16
Total direct labor cost Br.791,040 Br.800,640 Br.435,840 Br.2,027,520

D. Create a cash receipts budget (Monthly and in total).

Schedule of cash receipts budget:

April May June Total
February sales Br.47,040 0 0 Br.47,040
March sales Br.486,080 Br. 69,440 0 Br.555,520
April sales Br.218,880 Br.766,080 Br. 109,440 Br.1,094,400
May sales 0 Br.330,880 Br.1,158,080 Br.1,488,960
June sales 0 0 Br.170,880 Br.170,880
Total cash collections Br.752,000 Br.1,166,400 Br.1,438,400 Br.3,356,800
E. Create a cash disbursements budget. (Monthly and in total).

Budgeted cash disbursements:monthly and in total

April May June Total
Accounts payable Br.117,000 Br.  117,000
April purchases Br.234,840 Br.234,840 Br.  469,680
May purchases Br.237,690 Br.237,690 Br.  475,380
June purchases                            Br.129,390 Br.129,390
2
Total cash payments Br.351,840 Br.472,530 Br.367,080 Br. 1, 191,450

F. Create an overall cash budget. (Monthly and in total).

Earrings INC
Cash Budget
For the 3 Months Ending June 30
April May June Total
Beginning cash balance Br.91,000 Br. 67,134 Br.109,828 Br. 91,000
Add collections from Br.1,438,40
Br.752,000 Br.1,166,400 Br.3,356,800
customers 0
Total cash available Br.843,000 Br.1,233,534 Br.1, 548,228 Br.3,447,800
Less cash disbursements:
Material purchases Br.351,840 Br.472,530 Br.367,080 Br.1,191,450
Advertising Br.370,000 Br.370,000 Br.370,000 Br.1,110,000
Rent Br.35,000 Br.35,000 Br.35,000 Br.105,000
Salaries Br.140,000 Br.140,000 Br.140,000 Br.420,000

3
Commissions (4% of sales) Br.43,776 Br.66,176 Br.34,176 Br.144,128
Utilities Br.15,500 Br.15,500 Br.15,500 Br.46,500
Equipment purchases Br.0 Br.24,500 Br.57,000 Br.81,500
Dividends paid Br.27,750 0 0 Br.27,750
Total cash disbursements Br.983,866 Br.1,123,706 Br.1, 018,756 Br.3,126,328
Excess (deficiency) of cash
available over Br.(140,866) Br.109,828 Br.529,472 Br.321,472
disbursements
Financing:
Borrowings Br.208,000 0 0 Br.208,000
Repayments Br.0 Br.0 Br.(208,000) Br. (208,000)
Interest 0 0 Br. (6,240) Br. (6,240)
Total financing Br. 208,000 0 Br.(214,240) Br. (214240)
Ending cash balance Br.67,134 Br.109, 828 Br.315,232 Br.315,232

G. Create a budgeted income statement. (One for the quarter)

Earrings Inc
Budgeted Income Statement
For the three Months Ended June 30
Sales Br.3,603,200
Variable expenses:
Cost of goods sold (225,200 units × Br.5.70) Br.1,283,640
Sales Commissions (Br.3, 603,200×4%) Br. 144,128   
Less Total Variable expenses Br.
(1,427,768)
Contribution margin Br.2,175,432
Less Fixed expenses:
Advertising Br.1,110,000
Rent Br.105,000

4
 Salaries Br.420,000
Utilities Br.46,500
Insurance (Br.4,700 × 3month) Br.14,100
Depreciation (Br.31,000 × 3 month)  Br.  93,000 Br.
(1,788,600)
Net operating income Br.386,832
less operating expenses:Interest expense 6240Br         
Less total operating expense Br.(6240)
Net income Br.  380,592

H. Balance Sheet

Earrings INC
Budgeted Balance Sheet
For the month ended of June 30
Assets
Cash Br. 315,232
Accounts receivable (165440 may sales) and (683520 June sales) Br. 848,960
Inventory Br. 76,152
Prepaid insurance (Br.29,500 – Br.14,100) Br. 15,400
Property and equipment, net Br.1,108,500
(Br.1,120,000 + Br.81,500 – Br.93,000)
Total assets Br.2,364,244

Liabilities and Stockholders’ Equity

5
Accounts payable Br. 129,390
Dividends payable Br.27,750
Common stock Br.1,140,000
Retained earnings (Br. 714,262+ Br. 380,592- Br. 27,750) Br.1,067,104
Total liabilities and stockholders’ equity Br.2,364,244

6
7