1.Knockoffs Unlimited, a nationwide distributor of low-cost imitation designer necklaces, has an exclusive franchise on the distribution of the necklaces, and sales have grown so rapidly over the past few years that it has become necessary to add new members to the management team. To date, the company's budgeting practices have been inferior, and, at times, the company has experienced a cash shortage. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favourable impression on the president and have assembled the information below.

The necklaces are sold to retailers for $10 each. Recent and forecasted sales in units are as follows:

January (actual)

20,000

February (actual)

26,000

March (actual)

40,000

April

65,000

May

100,000

June

50,000

July

30,000

August

28,000

September

25,000

The large buildup in sales before and during May is due to Mother's Day. Ending inventories should be equal to 40% of the next month's sales in units.

The necklaces cost the company $4 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% 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 by month-end. 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.

The company's monthly selling and administrative expenses are given below:

Variable:

Sales commissions

4% of sales

Fixed:

Advertising

$ 200,000

Rent

18,000

Wages and salaries

106,000

Utilities

7,000

Insurance

3,000

Depreciation

14,000

All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance. 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 paid in cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below:

Assets

Cash

$74,000

Accounts receivable ($ 26,000 February sales; $ 320,000 March sales)

346,000

Inventory

104,000

Prepaid insurance

21,000

Fixed assets, net of depreciation

950,000

Total assets

$ 1,495,000

Liabilities

Accounts payable

$100,000

Dividends payable

15,000

Total liabilities

115,000

Shareholders' Equity

Common shares

800,000

Retained earnings

580,000

Total shareholders' equity

1,380,000

Total liabilities and shareholders' equity

$ 1,495,000

The company wants a minimum ending cash balance each month of $50,000. All borrowing is done at the beginning of the month, with any repayments made at the end of the month. The interest rate on these loans is 1% per month and must be paid at the end of each month based on the outstanding loan balance for that month.

Required: (35)

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. (2)

b.A schedule of expected cash collections from sales, by month and in total. (4)

c.A merchandise purchases budget in units and in dollars. Show the budget by month and in total. (4)

d.A schedule of expected cash disbursements for merchandise purchases, by month and in total. (4)

e.A cash budget. Show the budget by month and in total. (7)

f.A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. (7)

g.A budgeted balance sheet as of June 30. (7)

1. Knockoffs Unlimited, a nationwide distributor of low-cost imitation designer necklaces, has an exclusive franchise on the distribution of the necklaces, and sales have grown so rapidly over the past few years that it has become necessary to add new members to the management team. To date, the company's budgeting practices have been inferior, and, at times, the company has experienced a cash shortage. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favourable impression on the president and have assembled the information below. The necklaces are sold to retailers for $10 each. Recent and forecasted sales in units are as follows: January (actual) February (actual) March (actual) April May June July August September 20,000 26,000 40,000 65,000 100,000 50,000 30,000 28,000 25,000 The large buildup in sales before and during May is due to Mother's Day. Ending inventories should be equal to 40% of the next month's sales in units. The necklaces cost the company $4 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% 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 by month-end. 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. The company's monthly selling and administrative expenses are given below: Variable: Sales commissions Total static-budget variance: $1,464 F Fixed: Advertising Rent Wages and salaries Utilities Insurance Depreciation 4% of sales $ 200,000 18,000 106,000 7,000 3,000 14,000 All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance. 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 paid in cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets Cash Accounts receivable ($ 26,000 February sales; $ 320,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation Total assets $ 74,000 346,000 104,000 21,000 950,000 $ 1,495,000 Liabilities Accounts payable Dividends payable Total liabilities $ 100,000 15,000 115,000 Shareholders' Equity Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 800,000 580,000 1,380,000 $ 1,495,000 The company wants a minimum ending cash balance each month of $50,000. All borrowing is done at the beginning of the month, with any repayments made at the end of the month. The interest rate on these loans is 1% per month and must be paid at the end of each month based on the outstanding loan balance for that month. Required: (35) 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. (2) b. A schedule of expected cash collections from sales, by month and in total. (4) c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. (4) d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. (4) e. A cash budget. Show the budget by month and in total. (7) f. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. (7) g. A budgeted balance sheet as of June 30. (7)