Bright World LLC (BW) distributes sunglasses to small retail stores in the Midwest part of the United States. BW does not manufacture the sunglasses, but instead buys the sunglasses from foreign sources and resells the sunglasses to small retail stores. It is December of 2020 and you have been hired as BW's Budget Manager. BW's President, has asked you to prepare a master budget for 2021. You have gathered the following information and are ready to begin preparing the budget. Sales Information for BW: Actual sales 2020 Pairs of Sunglasses sold 1" quarter 70,000 2nd quarter 94,000 36,000 4th quarter 40,000 3rd quarter Forecasted sales 2021 1st quarter 2nd quarter 3rd quarter 4th quarter Your specific Input Your specific Input Your specific Input Your specific Input 1st quarter 2022 58,000 Shipping firms and U.S. Customs have previously delayed sunglass shipments arriving from the foreign manufacturers. BW management has addressed this concern by establishing a policy that the ending inventory for a quarter should be 50% of the next quarter's sales. All sunglasses are sold for $14 per pair. All sales are on credit with no discount, and are payable in 30 days. BW has found that only 20% of a quarter's sales are collected in the quarter of sale, with an additional 60% collected in the quarter following the sale, and the remaining 20% is collected in the second quarter following the sale. Bad debts have been insignificant and are not budgeted. BW buys sunglasses from foreign suppliers. BW pays $6 per pair of sunglasses. 40% of a quarter's purchase is paid for in the quarter of purchase, the other 60% is paid for in the quarter following the quarter of purchase. BW plans to purchase new computer equipment costing $30,000 during the second quarter of 2021 and a new packing machine for $40,000 during the 3rd quarter of 2021. Both of these equipment purchases will be for cash at the time of the purchase. BW has a regular dividend pattern which is expected to continue during 2021. This pattern involves BW's board of directors declaring a $25,000 quarterly dividend on March 15th, June 15th, September 15th, and December 15th. The dividends are paid 30 days after the board's declaration. 2nd Quarter Operating Expenses expected for 2021: Operating Expenses expected 1st Quarter 3rd Quarter 4th Quarter for 2021 - accrual based Variable Expenses: Sales Commission 5% of sales 5% of sales 5% of sales 5% of sales revenue revenue revenue revenue Fixed Expenses: Advertising $180,000 $200,000 $220,000 $220,000 Rent $20,000 $20,000 $20,000 $20,000 Salaries $113,000 $113,000 $120,000 $120,000 Utilities $9,000 $9,000 $9,000 $9,000 Insurance $6,000 $6,000 $6,000 $6,000 Depreciation (includes the $14,000 $14,000 $15,000 $16,000 projected 2021 purchases) Sales commissions are accrued in the quarter the sales are made, but are paid to the sales staff in the following quarter. Insurance for a twelve month period is prepaid on October 1 of each year. All other expenses are paid in the quarter incurred. The company requires a minimum cash balance of $50,000. All borrowings and repayments are done in even $1,000 increments. All borrowings are done on the first day of the quarter, and repayments are made on the last day of the quarter. Interest for all monies borrowed during a quarter is computed and accrued on the last day of the quarter and paid to the bank in the following quarter. Money borrowed is charged interest at a 7% annual rate. [Borrowing and Interest Example - If BW computes that the company will need to borrow $20,000 for the first quarter, the loan would occur on January 1 and interest expense during the first quarter would be $350 and this interest would be paid to the bank in the second quarter. If in the second quarter, BW determines that it will be able to repay the $20,000 loan, the repayment would occur on the last day of the second quarter or June 30. Interest expense for the second quarter would $350 and this interest would be paid in the third quarter.] Additional information gathered includes the Balance Sheet at year-end 2020 and the 2020 Income Statement Bright World LLC Balance Sheet December 31, 2020 ASSETS: Liabilities: Cash $74,000 Accounts Payable 184,320 Accounts Receivable 548,800 Dividends Payable 25,000 Inventory 187,200 Interest Payable 0 Prepaid Insurance 18,000 Loans Payable 0 Property & Equipment 975,000 Commissions Payable 28,000 Accumulated Depreciation (135,000) Total Liabilities 237,320 Capital Stock 800,000 Retained Earnings 630,680 Total Stockholder Equity 1,430,680 Total Assets $1,668,000 Total Liabilities and Stockholder's Equity $1,668,000 Bright World LLC Income Statement Year Ended December 31, 2020 2,870,000 Sales Cost of Goods Sold: Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold 210,000 1,207,200 1,417,200 187.200 1,230,000 Gross Profit 1,640,000 Operating Expenses: Advertising Expense Rent Expense Salaries Expense Utility Expense Insurance Expense Commission Expense Depreciation Expense Total Operating Expenses 700,000 72,000 411,000 28,000 24,000 144,000 52.000 1,431,000 Income Before Interest Expense 209,000 Interest Expense 6,700 Net Income 202.300 The 2021 Spring Budget Project Inputs file also includes the following check figures; Total 2021 Cash Collections from Sales, Step 1b. Total 2021 Cash Payments for Inventory Purchases, Step 1d. First Quarter 2021 Cash Borrowing on the Cash Budget, Step 1f. First Quarter 2021 Ending Cash Balance on the Cash Budget, Step 1f. Total 2021 Net Income, Step 2a. Use the schedule listing below as a guide to work through your Budget Project. All schedules listed below in Number 1, must be prepared by quarter and include an annual total column. For all schedules in number 1 and 2 below round amounts to the nearest dollar. Display dollar amounts for Number 1 and 2 below with a coma separating the dollar amounts and with NO cents listed. This means that your schedules for number 1 and 2 below should NOT show cents, including zeros on your schedules. A figure of 123000.00 is not acceptable. This figure should be displayed as 123,000. For all calculations in number 3, calculations should be to 3 places after the decimal point. Problem 8-29 in the book and the pages referenced below are ONLY EXAMPLES. DO NOT use Problem 8-29 or the book references as copy and insert the number. You need to use the assumptions of this Budget Project to prepare a schedule that fits the facts of the 2021 Budget you are preparing. 3) Additional analysis information including (show computations): a) Break-Even in units and Break-Even revenue dollars for budget year 2021. b) Margin of Safety for 2021 in total dollar amount and percentage. c) Contribution Margin Ratio for 2021. d) Any additional analysis that you have calculated (Optional). My Special Inputs: Forecasted Sales 2021 1st Quarter 2020 2nd Quarter 2020 3rd Quarter 2020 62,400 67,600 34,400 41,400 58,000 4th Quarter 2020 1st Quarter 2021 Check figures: Total 2021 Cash Collections from Sales = 2,870,000 Total 2021 Cash Payments for Inventory Purchases = 1,227,000 First Quarter 2021 Cash Borrowings on the Cash Budget = 80,000 First Quarter 2021 Ending Cash Balance on the Cash Budget = 50,200 Total 2021 Net Income on the Income Statement = 12,282