Case 9-27 Master Budget with Supporting Schedules [LO2] 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 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) February (actual) March (actual) April May 21,500 June 29,000 July 42,000 August 68,000 September 102,000 53,000 33,000 31,000 28,000 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: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Wages and salaries Utilities Insurance Depreciation $209,000 19,500 109,600 8, 200 3,600 17,000 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 $17,200 in new equipment during May and $43,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,600 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: $ 77,000 Assets Cash Accounts receivable ($29,000 February sales; $336,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation Total assets Liabilities and Shareholders' Equity Accou payable Dividends payable Common shares Retained earnings Total liabilities and shareholders' equity 365,000 108,800 25,200 965,000 $1,541,000 $ 104,800 15,600 830,000 590,600 $1,541,000 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: 1. 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. April May June Quarter Sales budget Budgeted sales in units Selling price per unit Total sales $ 0 $ 0 S 0 $ b. A schedule of expected cash collections from sales, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May June Quarter S 0 0 0 February sales March sales April sales May sales June sales Total cash collections 0 0 5 S 0 S 0 $ 0 c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. KNOCKOFFS UNLIMITED Merchandise Purchases Budget April May June Quarter Budgeted sales in units Total needs 0 0 0 0 0 0 0 Required unit purchases Unit cost Required dollar purchases $ 0 $ 0 $ 0 $ d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Disbursements April May June Quarter S 0 0 March purchases April purchases May purchases June purchases Total cash disbursements 0 0 S 0 S 0 S 0 S 0 2. A cash budget. Show the budget by month and in total. (Round your intermediate calculations and final answers to the nearest whole dollar. Also, round down your interest calculations to the next whole dollar amount. Cash deficiency, repayments and interest should be indicated by a minus sign. Do not leave any empty spaces; input a 0 wherever it is required.) June Quarter 0 0 0 0 KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May Cash balance, beginning Add receipts from customers Total cash available Less disbursements: Purchase of inventory Advertising Rent Salaries and wages Sales commissions Utilities Dividends paid Equipment purchases Total disbursements 0 Excess (deficiency) of receipts over disbursements Financing Borrowings Repayments Interest Total financing Cash balance, ending S S 0 0 0 0 0 0 0 0 0 0 0 0 0 S 0 S 0 3. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. KNOCKOFFS UNLIMITED Budgeted Income Statement For the Three Months Ended June 30 Variable expenses: 0 0 Fixed expenses 0 0 $ 0 4. A budgeted balance sheet as of June 30. KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Total assets $ 0 Liabilities and Shareholders' Equity Total liabilities and shareholders' equity $ 0