Budgeting Assignment - Master Budget with Supporting Schedules

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 companys 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) March (actual) May

20,000 June 50,000

40,000 August 28,000 100,000

February (actual) 26,000

July 30,000

April 65,000

September25,000

The large buildup in sales before and during May is due to Mothers Day. Ending inventories should be equal to 40% of the next months 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 months 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 companys monthly selling and administrative expenses are given below:

Variable:

Sales commissions

Fixed:

Advertising

Rent

Wages and salaries

Utilities

Insurance

Depreciation

$

18,000

7,000 14,000

4

% of sales

200,000

106,000

3,000

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 companys balance sheet at March 31 is given below:

Cash

$ 74,000

346,000

104,000

21,000

950,000 $1,495,000

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

Inventory

Prepaid insurance

Fixed assets, net of depreciation Total assets

Assets

Liabilities and Shareholders Equity

Accounts payable

Dividends payable

Common shares

Retained earnings

Total liabilities and shareholders equity

$ 100,000

15,000

800,000

580,000 $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:

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

1.

a. A sales budget by month and in total.

b. A schedule of expected cash collections from sales,

by month and in total.

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

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

2. A cash budget. Show the budget by month and in total.

3. A budgeted income statement for the three-month period

ending June 30. Use the variable costing approach. 4. A budgeted balance sheet as of June 30.

Budgeting Assignment - Master Budget with Supporting Schedules Knockoffs Unlimited, a nationwide distributor of low-costitation designer necks. hasan exclusive franchise on the distribution of the necklaces and sales have grown idyover the past few years that has become necessary to add new members to the management To 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. Art You are audious to make a favourable impression on the president and have assembled the information The necklaces are sold to retaler for $10each Recent and forecasted sales in sareas January 20.000 e 50.000 February actual 26.000 30.000 40.000 Aue 28000 April 65.000 September 25.000 s should The large buildup in sales before and during May is due to Mother's Day. Ending be equal to 40% of the next month's sales in units The necklaces cost the company S4 each Purchases are for purchase and the remaining 50% in the following month. All sales on credit whe and payable within 15 days. The company has found. However, that only 20% of mor cindbymorth-end. An daonlo dinhe r e 10% is collected in the second month following sa Bad Gets have been negli The company's monthly selling and administrative expenses are given below the month of count e nne Sales Commons 45 of sales Advertising $200.000 Wages and salaries 100.000 Al selling and administrative expenses are paid during the month in cash with the s on of depreciation and insurance Insurance is paid on an amalan November of each year. The company plans to purchase $16.000 in new equipment during May and $40.000 during Juner both purchases will be paid inch The company declares dividends of $15.000 each Quarter payable in the first month of the following quarter. The company's balance March Ac r edible 26.000 February Prepaid insurance Faxed ass et of depreciation Total assets $15.000 Liabilities and Shareholders' Equity $100.000 Dividend payable Toal es and shareholderguy $1495.000 Wonders 100000 14000 Al selling and administrative expenses are pard during the more in cash, with the exception of depreciation and insurance Insurance is paid on an annual basis in November of each year. The purchase $15.000 in new tu n d $40.000 during Juboth purchases will be paid in cash The company Secres dividends $15.000 quarter, payable in the first month of the following quarter. The company's balance sheet March 31 is given below 14,000 $ Accounts receivable 2.000 February sales $320.000 Marches d eset of depreciation Total $1.495.000 Liabilities and Shareholders' Equity 100.000 15.000 Total abilities and shareholders equity 51.495.000 The company wants a minimum ending cash balance each month of $50.000. Alboming is done at the beginning of the month, with any repayments made the end of the month The rest 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 more Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets a Asales budget by month and in total b. A schedule of expected cash collections from sales, by month and in total C. A merchandise purchases budget in units and in dollars. Show the budget by month and in total d. Aschedule of expected cash disbursements for merchandise purchases by month and in total 2. A cash budget. Show the budget by month and in total 3. A budgeted income statement for the three-month period ending June 3o. Use the variable costing approach. 4. A budgeted balance sheet as of June 30