Assets Cash :3 75,000 Accounts receivable ($27,000 February sales; $320,000 March sales) 347,000 Inventory 105,600 Prepaid insurance 22,400 Fixed assets, net of depreciation 955,000 Total assets $1,505,000 Liabilities and Shareholders' Equity Accounts payable $ 100,800 Dividends payable 15,200 Common shares 810,000 Retained earnings 579,000 Total liabilities and shareholders' equity $1,505,000 The company wants a minimum ending cash balance each month of $50,000, All borrowing is done at the beginning ofthe 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. Knockoffs Unlimited, a nationwide distributor oflowcost 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 eager 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 forecast sales in units are as follows: January (actual) 20,500 June 51,000 February (actual) 27,666 July 31,666 March (actual) 40,000 August 29,000 April 66,666 September 26,666 May 199, 000 The large buildup in sales before and during May is due to Mother's Day. Ending inventories should be equal to 40% ofthe 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% ofa 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 $263,666 Rent 18, 568 Wages and salaries 167,266 Utilities 7,468 Insurance 3,266 Depreciation 15,666 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 $16,400 in new equipment during May and $41,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,200 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below