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) 20,000 June 50,000 February (actual) 26,000 July 30,000 March (actual) 40,000 65,000 August September 28,000 25,000 100,000 April May 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: Variable: Sales commissions Fixed: Advertising Rent 4% of sales $200,000 18,000 Wages and salaries Utilities Insurance Depreciation 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: Cash Assets Accounts receivable ($26,000 February sales; $320,000 March sales) Inventory Prepaid insurance rance Fixed assets, net of depreciation Total assets Liabilities and Shareholders' Equity Accounts payable Dividends payable Common shares Retained earnings Total liabilities and shareholders' equity $ 74,000 346,000 104,000 21,000 950,000 $1,495,000 $ 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. 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 O wherever it is required.) KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 Cash balance, beginning Add receipts from customers Total cash available Less disbursements: Purchase of inventory Advertising Rent Salaries and wages Sales commissions Utilities $ April 74,000 May June $ 50,000 ( $ 50,000 ( Quarter $ 74,000 436,000 695,000 865,000 1,996,000 ( 510,000 745,000 915,000 2,070,000 258,000 318,000 244,000 820,000 200,000 200,000 200,000 600,000 ( 18,000 18,000 18,000 54,000 106,000 106,000 106,000 318,000 26,000 40,000 20,000 86,000 7,000 7,000 ( 7,000 21,000 Dividends paid 15,000 0 0 15,000 ( Equipment purchases Total disbursements 0 16,000 40,000 56,000 ( 630,000 705,000 635,000 1,970,000 Excess (deficiency) of receipts over disbursements (120,000) 40,000 280,000 100,000 Financing: Borrowings 170,000 10,000 0 180,000 Repayments 0 0 (180,000) (180,000) Interest 0 0 (5,300) (5,300) Total financing 170,000 Cash balance, ending $ 50,000 $ 10,000 50,000 (185,300) (5,300) $ 94,700 $ 94,700 *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted. 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 $2,150,000 Variable expenses: Cost of goods sold Commissions Contribution margin $ 860,000 ( 86.000 946,000 1,204,000 Fixed expenses: Advertising 600,000 Rent 54,000 Wages and salaries 318,000 Utilities 21,000 Insurance 9,000 Depreciation Operating income Less interest expense Net income 42,000 1,044,000 160,000 5,300 X $ 154,700 *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted. 4. A budgeted balance sheet as of June 30. Cash KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Accounts receivable Inventory Prepaid insurance Fixed assets, net of depreciation $ 94,700 X 500,000 48,000 12,000 964,000 Total assets $ 1,618,700 Liabilities and Shareholders' Equity Accounts payable, purchases EA $ Dividends payable Common shares Retained earnings 84,000 15,000 800,000 719,700 X Total liabilities and shareholders' equity $ 1,618,700 *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted