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) 23,000 June 56,000 32,000 45,000 April May 71,000 105,000 July August September 36,000 34,000 31,000 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: Variable: Sales commissions Fixed: Advertising Rent 4% of sales $218,000 21,000 Wages and salaries 113,200 Utilities Insurance Depreciation 9,400 4,200 20,000 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 $18,400 in new equipment during May and $46,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $16,200 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets Cash Accounts receivable ($32,000 February sales; $360,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation Total assets Accounts payable Dividends payable Common shares $ 80,000 392,000 113,600 29,400 980,000 $1,595,000 Liabilities and Shareholders' Equity $ 110,800 16,200 860,000 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. Answer is complete and correct. Sales budget April May June Quarter Budgeted sales in units 71,000 105,000 56,000 232,000 Selling price per unit $ 10 10 10 10 Total sales $710,000 $ 1,050,000 $ 560,000 $ 2,320,000 b. A schedule of expected cash collections from sales, by month and in total. Answer is complete and correct. KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May June Quarter February sales $ 32,000 $ 32,000 March sales 315,000 45,000 360,000 April sales 142,000 May sales 497,000 210,000 71,000 710,000 735,000 945,000 June sales Total cash collections $ 489,000 $ 752,000 $ 112,000 918,000 112,000 $ 2,159,000 c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. Answer is complete and correct. KNOCKOFFO UNLIMITED Answer is complete and correct. KNOCKOFFS UNLIMITED Merchandise Purchases Budget April May June Quarter Budgeted sales in units 71,000 105,000 56,000 232,000 Add: Budgeted ending inventory 42,000 22,400 14,400 14,400 Total needs 113,000 127,400 70,400 246,400 Less: Beginning inventory 28,400 42,000 22,400 28,400 Required unit purchases Unit cost 84,600 85,400 48,000 218,000 $ 4 $ 4 4 $ 4 Required dollar purchases $ 338,400 $ 341,600 $ 192,000 $ 872,000 d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. Answer is complete and correct. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. Answer is complete and correct. KNOCKOFFS UNLIMITED Schedule of Expected Cash Disbursements March purchases April purchases May purchases April May S 110,800 169,200 169,200 170,800 June Quarter $ 110,800 338,400 June purchases Total cash disbursements S 280,000 170,800 96,000 340,000 $ 266,800 341,600 96,000 $ 886,800 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.) Anmune in nat mamalaka Return to question 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 Answer is not complete. KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May June Quarter 0 0 0 0 Total disbursements 0 0 0 0 Excess (deficiency) of receipts over disbursements Financing: 0 0 Financing: Borrowings Repayments Interest Total financing 0 0 0 0 Cash balance, ending $ 0 $ 0 $ 0 $ 0 3. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. Answer is not complete. KNOCKOFFS UNLIMITED Budgeted Income Statement For the Three Months Ended June 30 Variable expenses: 0 0 Fixed expenses: 0 0 4. A budgeted balance sheet as of June 30. > Answer is not complete. 0 0 $ 0 Total assets Answer is not complete. KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Liabilities and Shareholders' Equity $ 0 Total liabilities and shareholders' equity $ 0