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) 26,000 June 62,000 February (actual) 38 , 000 July 42 , 000 March (actual) 51 , 000 August 40 , 000 April 77,000 September 37,000 May 111, 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 4% of sales Fixed: Advertising $236,000 Rent 24,000 Wages and salaries 120,400 Utilities 11,800 Insurance 5,400 Depreciation 26,000 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 $20,800 in new equipment during May and $52,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $17,400 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets Cash $ 86,000 Accounts receivable ($38,000 February sales; $408,000 March sales) 446,000 Inventory 123,200 Prepaid insurance 37,800 Fixed assets, net of depreciation 1,010,000 Total assets $1,703,000 Liabilities and Shareholders' Equity 15'1er assets, net: OI ueprec1ation LIULUIUUU Total assets $1,703,000 Liabilities and Shareholders' Equity Accounts payable $ 122 , 800 Dividends payable 17 , 4 0 0 Common shares 920 , 000 Retained earnings 642 , 800 Total liabilities and shareholders ' equity $ 1 , 703 I 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. 0 Answer is complete and correct. 77,000 0 111,000 0 $ 10 o $ 10 $ 770,000 $ 1,110,000 62,000 0 250,000 0 10 2,500,000 Budgeted sales in units Selling price per unit Total sales $ 620,000 $ b. A schedule of expected cash collections from sales, by month and in total. Q Answer is complete and correct. February sales $ 38,000 0 __$ 38,000 March sales 357,000 0 51,000 0 _ 408,000 April sales 154,000 0 539,000 9 77,000 a 770,000 May sales _ 222,000 0 777,000 0 999,000 Junesales 124.0000 124,000 Total cash collections $ 549,000 $ 812,000 $ 978,000 $ 2,339,000 c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. 6 Answer is complete but not entirely correct. Budgeted sales in units 77,000 0 111,000 0 62,000 9 250.000 0 Add: Budgeted ending inventory 0 44,000 9 24,800 0 16,800 0 16,800 0 Total needs 121,000 135,800 78,800 266,800 Less: Beginning inventory 0 30,800 0 24,800 9 30.800 0 Required unit purchases 90,200 91,400 54,000 236,000 Unit cost $ 4 o $ 4 $ 4 $ 4 Required dollar purchases $ 360,800 $ 365,600 $ 216,000 $ 944,000 d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 0 Answer is complete and correct. March purchases :5 122.800 0 __$122,800 2. A casn budget. snow the budget by month and In total. (Round your intermediate calculations and tinal 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.) Q Answer is complete but not entirely correct. Cash balance, beginning Add receipts from customers 549.000 0 812,000 0 978,000 0 2339.000 0 Total cash available 635.000 862.600 1,028,000 2,425,000 Less disbursements: Purchase of inventory 304.000 0 364.000 0 290,800 0 958.800 0 Advertising 236,000 0 44,400 6 236,000 0 100,000 9 Rent Salaries and wages 24,000 0 120.400 0 236,000 9 24.000 9 24,000 0 120,400 0 708.000 0 72.000 6 Sales commissions 30,000 0 120,400 6 24,800 0 361,200 0 Utilities Dividends paid 11,800 0 11,800 0 11,300 0 35.400 0 17.400 0 Em iinmnv m wall-155A;- 7-) cinn h Add receipts from customers 549,000 812,000 978,000 2,339,000 Total cash available 635,000 862,600 1,028,000 2,425,000 Less disbursements: Purchase of inventory 304,000 V 364,000 V 290,800 958,800 Advertising 236,000 44,400 X 236,000 100,000 X Rent 24,000 236,000 X 24,000 708,000 X Salaries and wages 120,400 V 24,000 X 120,400 72,000 X Sales commissions 30,800 120,400 X 24,800 361,200 X Utilities 11,800 11,800 V 11,800 35,400 Dividends paid 17,400 17,400 Equipment purchases 20,800 V 52,000 72,800 Total disbursements 744,400 821,400 759,800 2,325,600 Excess (deficiency) of receipts over disbursements (109,400) 41,200 268,200 99,400 Financing: Borrowings 161,010 11, 121 172, 131 Repayments (172,131) (172,131) Interest (1,610) (1,721) (1,721) (5,052) Total financing 159,400 9.400 (173,852) (5,052) Cash balance, ending $ 50,000 $ 50,600 $ 94,348 $ 94,3483. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. 9 Answer is not complete. Sales revenue 0 $ 2,500,000 0 Variable expenses: Cost of goods sold 0 $ 1,000,000 0 _ Sales revenue 9 100,000 0 1,100,000 Contribution margin 0 1,400,000 Wages and salaries 0 361,200 0 Utilities 35,200 9 Insurance 0 16,200 0 Depreciation a 73.000 9 Advertising 0 708,000 9 Rent 0 72,000 0 Sales revenue V $ 2,500,000 Variable expenses: Cost of goods sold $ 1,000,000 Sales revenue X 100,000 1, 100,000 Contribution margin V 1,400,000 Fixed expenses: Advertising 708,000 Rent V 72,000 Wages and salaries V 361,200 Utilities V 35,200 X Insurance V 16,200 Depreciation V 78,000 1,270,600 Operating income V 129,400 Add interest expense X 5,052 $ 124,3484. A budgeted balance sheet as of June 30. 0 Answer is complete and correct. Cash Accounts receivable 69 94,343 9 607,000 9 67,200 9 21,600 9 1,004,300 9 Inventory Prepaid insurance Fixed assets, net of depreciation Total assets 1,794,948 _ _ _ _ _ _ _ Liabilities and Shareholders' Equity Accounts payable, purchases 108,000 9 17,400 9 Dividends payable II II Accounts receivable a 607,000 9 Inventory 9 67,200 9 Prepaid insurance 9 21,600 a Fixed assets, net of depreciation 9 1,004,800 a Total assets $ 1,794,948 Liabilities and Shareholders' Equity Accounts payable, purchases a $ 108,000 a Dividends payable 9 17,400 9 Common shares a 920,000 a Retained earnings 0 749,548 a Total liabilities and shareholders' equity '5 1,794,948