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 rst 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) 26,666 June 56,666 February (actual) 26,666 July 36,666 March (actual) 46,666 August 28,666 April 65,666 September 25,666 May 109,966 The large buildup in sales before and during May is due to Mother's Day. Ending inventories should be equal to 40% ofthe 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% ofa 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 4% of sales Fixed: Advertising $266,666 Rent 18,068 Wages and salaries 166,666 Utilities 7,966 Insurance 3,666 Depreciation 14,666 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: Assets Cash 1; 74,999 Accounts receivable ($26,666 February sales; $326,666 March sales) 346,666 Inventory 164,666 Prepaid insurance 21,666 Fixed assets, net of depreciation 956,666 Total assets $1,495,666 Liabilities and Shareholders' Equity Accounts payable $ 166,666 Dividends payable 15,666 Common shares 866,666 Retained earnings 586,666 Total liabilities and shareholders' equity $1,4951939 The company wants a minimum ending cash balance each month of $50,000. All borrowing is done at the beginning ofthe month, with any repayments made at the end ofthe 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. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. Budgeted sales in units Total needs :l:l:l:l:l Required unit purchases Required dollar purchases