1 June 25,000 $1.00 1,000 $1.00 54.28 (LO 3. 4. 5) Comprehensive master budget in a manufacturing setting Klandon Company sells decorative rocks for aquariums. Kim Klandon is preparing the budget for the quarter ended June 30. She has gathered the following information. 1. Klandon's sales manager reported that the company sold 15,000 bags of rocks in March. He has developed the following sales forecast. The expected sales price is $25 per bag. April 18,000 bags May 22,000 bags 21,000 bags July 14,000 bags August 16,000 bags 2. Sales personnel receive a 4% commission on every bag of rocks sold. The following monthly fixed selling and administrative expenses are planned for the quarter. However, these amounts do not include the depreciation increase resulting from the budgeted equipment purchase in June (see part 4). Monthly Fixed Selling and Administrative Costs Variable Cost/Unit Depreciation $10,000 Salaries of sales personnel Advertising Management salaries 60,000 Miscellaneous 8,000 Bad debts Total costs S46,500 3. Klandon purchases the rocks from a supplier at a cost of $17 per bag. After experiencing difficulty in supplying customers in a timely fashion due to inventory shortages, the company established a policy requiring the ending Finished Goods Inventory to equal 25% of the following month's budgeted sales, in units. On March 31, 3,800 bags were on hand. 4. On June 1, the company plans to spend $24,000 to upgrade its office equipment that is fully depreciated. The new equipment is expected to have a five-year life, with no residual value. While full- depreciated, the old equipment will be retained in service. 5. All sales are made on account. Historically, the company has collected 70% of its sales in the month of sale and 25% in the month following the sale. The remaining 5% of sales is uncollectible (and is included in the previous selling and administrative bad debt expense information). 6. Klandon must maintain a minimum cash balance of $50,000. An open line of credit at a local bank allows the company to borrow up to $175,000 per quarter in $1,000 increments. 7. All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest is paid any time a principal payment is made. The interest rate is 12% per year. 8. A quarterly dividend of $60,000 will be declared and paid in April. 9. Income taxes payable for the first quarter will be paid on April 15. Klandon's tax rate is 30%. 10. The March 31 balance sheet is as follows: March 31 Cash $ 40,000 Accounts receivable 93.750 Finished goods inventory 64,600 Plant & equipment 200,000 Accumulated depreciation (50,000) Total assets $348 350 Accounts payable $ 12,000 Income taxes payable 24,000 Common stock 52,000 Retained earnings 260 350 Total liabilities and equities $348 350 Required a. Prepare all components of Klandon's master budget for the second quarter. b. Prepare a pro-forma income statement for the second quarter. c. Prepare a pro-forma balance sheet as of June 30