Assume you are a new management accountant at Modern Fashion House (MFH). MFH imports different types of shirts from southeast Asia and supplies them to various retailers across Australia. Previously, MFH didnt prepare formal budgets, and hence faced various issues including supplies, stockouts, and cash deficiencies. As a well-trained management accountant, you have identified the issues and advised management on how appropriate planning and budgeting can control the operations and address these issues. Based on your advice, management decided to prepare complete budgets for the upcoming second quarter of the year (April, May & June) 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. MFH sells many styles of shirts, but all are sold for the same price$50 per shirt. Actual sales of shirts for the last three months and budgeted sales for the next six months are provided below (shirts in units):

The focus of sales before and during May is due to a special celebration day. Enough stock should be on hand at the end of each month to supply 40% of the shirts sold in the following month.

Suppliers are paid $20 for a shirt. One-half of a months purchases are 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. MFH has found, however, that only 20% of a months 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 the sale. Uncollectible has been negligible. Monthly operating expenses for MFH is given below:

All of the operating expenses are paid during the respective month except insurance which is paid on an annual basis, in November of each year. MFH plans to purchase $80,000 in new equipment during May and $200,000 in new equipment during June; both purchases will be for cash. MFH declares dividends of $75,000 each quarter, payable in the first month of the following quarter.

A listing of the MFHs ledger accounts as of March 31 is given below:

MFH maintains a minimum cash balance of $250,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

MFH has an agreement with a bank that allows the MFH to borrow in increments of $5,000 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, MFH would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $5,000), while still retaining at least $250,000 in cash.

Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:

1. A sales budget, by month and in total.

2. A schedule of expected cash collections from sales, by month and in total.

3. A purchase budget in units and in dollars. Show the budget by month and in total.

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

5. A Selling and Administrative Expenses Budget and show cash payments for S&A Expenses by month and in total.

6. 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 $250,000.

7. A pro forma income statement for the three-month period ending June 30. Use the contribution approach.

8. A pro forma balance sheet as of June 30.

Show calculations and workings. Thank you.

\begin{tabular}{|l|r|} \hline Variable: & \\ \hline Sales commissions & 4% of sales \\ \hline Fixed: & \\ \hline Advertising & $1,000,000 \\ \hline Rent & 90,000 \\ \hline Salaries & 530,000 \\ \hline Utilities & 35,000 \\ \hline Insurance & 15,000 \\ \hline Depreciation & 70,000 \end{tabular} \begin{tabular}{|c|c|c|c|c|c|} \hline \multicolumn{5}{|c|}{ Manufacturing Data } \\ \hline 2016 & NumberofCanoesmanufactured & TotalCanoemanufacturingcosts & Year & NumberofPaddlesmanufactured & TotalPaddlemanufacturingcosts \\ \hline 2015 & 250 & $106000 & 2016 & 900 & $38500 \\ \hline 2014 & 275 & 115000 & 2015 & 1200 & 49000 \\ \hline 2013 & 310 & 108000 & 2014 & 1000 & 42000 \\ \hline 2012 & 350 & 122000 & 2013 & 1100 & 45500 \\ \hline 2011 & 400 & 130000 & 2012 & 1400 & 56000 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|} \hline \multicolumn{5}{|c|}{ Marketing Data } \\ \hline Year & NumberofCanoessold & TotalCanoemarketingcosts & Year & NumberofPaddlessold & TotalPaddlemarketingcosts \\ \hline 2016 & 250 & $45000 & 2016 & 900 & $7500 \\ \hline 2015 & 275 & 47500 & 2015 & 1200 & 9000 \\ \hline 2014 & 240 & 44000 & 2014 & 1000 & 8000 \\ \hline 2013 & 310 & 51000 & 2013 & 1100 & 8500 \\ \hline 2012 & 350 & 55000 & 2012 & 1400 & 10000 \\ \hline 2011 & 400 & 60000 & 2011 & 1700 & 11500 \\ \hline \end{tabular} \begin{tabular}{|l|r|} \hline Assets & \multicolumn{1}{|c|}{ Amount } \\ \hline Cash & $370,000 \\ \hline Accountsreceivable($130,000Februarysales;$1,600,000Marchsales) & 1,730,000 \\ \hline Stock & 520,000 \\ \hline Prepaid insurance & 105,000 \\ \hline Property and equipment (net) & 4,750,000 \\ \hline Total & $7,475,000 \\ \hline Liabilities and Stockholders' Equity & Amount \\ \hline Accounts payable & $500,000 \\ \hline Dividends payable & 75,000 \\ \hline Share Capital & 4,000,000 \\ \hline Retained earnings & 2,900,000 \\ \hline Total & $7,475,000 \end{tabular}