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 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) February (actual) March (actual) April May 20,000 26,000 40,000 65,000 100,000 June 50,000 July 30,000 August 28,000 September 25,000 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 $200,000 18,000 106,000 7,000 3,000 14,000 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 company's balance sheet at March 31 is given below: $ 74,000 Assets Cash Accounts receivable ($ 26,000 February sales; $320,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation 346,000 104,000 21,000 950,000 Total assets $1,495,000 $ Liabilities and shareholders' Equity Accounts payable Dividends payable Common shares Retained earnings 100,000 15,000 800,000 580,000 Total liabilities and shareholders' equity $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: a. A sales budget by month and in total. Sales budget Budgeted sales in units Selling price per unit Total sales April 65,000 10 650,000 May 100,000/ $ 10 $1,000,000 June 50,000 10 500,000 Quarter 215,000 $ 10 $2,150,000 | $ $ $ $ b. A schedule of expected cash collections from sales, by month and in total. $ February sales March sales April sales May sales June sales Total cash collections KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May June $ 26,000 280,000 40,000 130,000 455,000 65,000 200,000 700,000 100,000 $ 436,000 $ 695,000 $ 865,000 Quarter 26,000 320,000 650,000 900,000 100,000 1,996,000 $ c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. June 50,000 Budgeted sales in units Quarter 215,000 72,000 12.000 KNOCKOFFS UNLIMITED Merchandise Purchases Budget April May 65,000 100,000 40,000 20,000 105,000 120,000 26,000 40,000 79,000 80,000 $ 40 $ 4 $ 316,000 $ 320,000 Total needs Required unit purchases Unit cost Required dollar purchases 62,000 20,000 42,000 4 168,000 287,000 86,000 201,000 4 804,000 $ $ $ $ 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 March purchases $ 100,000 April purchases 158,000 158,000 May purchases 160,000 160,000 June purchases 84,000 Total cash disbursements $ 258,000 $ 318,000 $ 244,000 Quarter 100,000 316,000 320,000 84,000 820,000 $ 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 50,000 865,000 915,000 Quarter 74,000 1,996,000 2,070,000 KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May Cash balance, beginning $ 74,000 $ 50,000 Add receipts from customers 436,000 695,000 Total cash available 510,000 745,000 Less disbursements: Purchase of inventory 258,000 318,000 Advertising 200,000 200,000 Rent 18,000 18,000 Salaries and wages 106,000 106,000 Sales commissions 26,000 40,000 Utilities 7,000 7,000 Dividends paid 15,000 Equipment purchases 16,000 Total disbursements 630,000 705,000 Excess (deficiency) of receipts over disbursements (120,000) 40,000 Financing: Borrowings Repayments Interest Total financing 0 0 Cash balance, ending | $ (120,000) $ 40,000 244,000 200,000 18,000 106,000 20,000 7,000 820,000 600,000 54,000 318,000 86,000 21,000 15,000 56,000 1,970,000 100,000 40,000 635,000 280,000 0 280,000 0 100,000 $ $ 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 Sales revenue Variable expenses: Fixed expenses: 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