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 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) 28,000

June 66,000

February (actual) 42,000

July 46,000

March (actual) 55,000

August 44,000

April 81,000

September 41,000

May 115,000

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 4 % of sales Fixed:

Advertising 248,000

Rent 26,000

Wages and salaries 125,200

Utilities 13,400

Insurance 6,200

Depreciation 30,000

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 $22,400 in new equipment during May and $56,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,200 each quarter, payable in the first month of the following quarter. The companys balance sheet at March 31 showed the following balances:

Assets Cash $ 90,000

Accounts receivable ($42,000 February sales; $440,000 March sales) 482,000

Inventory 129,600

Prepaid insurance 43,400

Fixed assets, net of depreciation 1,030,000

Total assets $1,775,000

Liabilities and Shareholders Equity Accounts payable $ 130,800

Dividends payable 18,200

Common shares 960,000

Retained earnings 666,000

Total liabilities and shareholders equity $1,775,000

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 monthly interest rate on these loans is 1% of the amount borrowed at the beginning of the month and must be paid at the end of each month.

Required: e) A cash budget, show the cash budget by month and in total. (25mks)

f) A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. (20mks)