Knockoffs Unlimited, a nationwide distributor of lowcost 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) 2?,588 June 65,800 February (actual) 41,888 July 45,800 March (actual) 54,888 August 43,800 April 30,888 September 48,800 May 114, 888 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% 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 $245,800 Rent 25 , 5w Wages and salaries 124,800 Utilities 13,809 Insurance 6,800 Depreciation 29,800 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 $22,000 in new equipment during May and $55,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets Cash $ 39,800 Accounts receivable ($41,000 February sales; $432,000 March sales] 473,800 Inventory 123,800 Prepaid insurance 42,800 Fixed assets, net of depreciation 119255390 Total assets $1;?57:330 Liabilities and Shareholders' Equity Accounts payable $ 123,800 Dividends payable 13,800 Common shares 958,800 Retained earnings 568,200 Total liabilities and shareholders' equity $1;?57:330 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 atthe end of each month based on the outstanding loan balance for that month. Required: 1. Prepare a master budget for the threemonth period ending June 30. Include the following detailed budgets: a- A sales budget by month and in total. 0 Answer is complete and correct. Budgeted sales In units 30. mm 0 114. mm M0 55. 11110 M0 259. 11110100 Selling price per unit 10 0 $ 343.00 mm 1 1.4.0 mm 5.511 mm 2. 590. 111111 b. A schedule of expected cash collections from sales. by month and in total. 9 Answer is not complete. February sales 41 41.11111] 01'. II 0 09 41.11110 1511.001] 0 5511. mm a 30.111100: 300.1100 II D: 223. mm D: 793. mm 0 1026 11110 1311111109 1311. 11110 Total cash collections 55 201.0009 $ 842.0009 $ 1.008.000 $ 2.051.000 c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. 9 Answer is not complete. Budgeted sales in units 00,000 114,000 55,000 0 259,000 0 Add: Budgeted ending inventory Total needs 30,000 114,000 55,000 259,000 Less: Beginning inventory Required unit purchases 30,000 114,000 55,000 259,000 Unil cost 4 0 Required dollar purchases 320,000 $ 456,000 $ 250,000 $ 1,036,000 0'. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 9 Answer is complete but not entirer correct. March purchases 123,000 9 s 0 0 0 0 3 123,000 April purchases 131,200 0 131,200 0 0 0 301,400 May purchases 0 0 113,300 0 133,300 0 30?,300 June purchases 0 o 0 0 114,000 0 114,000 Total cash disbursements $ 315,200 5 306,000 5 302,300 $ 924,000 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.) x Answer is not complete. KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May June Quarter Cash balance, beginning $ 89,000 $ 50,000 $ 50,001 $ 89,000 Add receipts from customers Total cash available 89.000 50,000 50,001 89.000 Less disbursements Purchase of inventory Advertising 245,000 245,000 245,000 Rent 25,500 25,500 25,500 Salaries and wages 124,000 124,000 124,000 Sales commissions 13,000 x 13,000 x 13,000 x Utilities 22,000 X 55,000 X Dividends paid 18,000 0 0 Equipment purchases 0 22,000 55,000 Total disbursements 425,500 451,500 517,500 0 Excess (deficiency) of receipts over disbursements 336,500) (401,500 (467,499) 89.000 Financing Borrowings 189,000 x 15,000 X 0 Repayments 0 0 204,000 x Interest 1,890 x 2,040 x O X Total financing 190,890 17,040 204,000 0 Cash balance, ending $ (145,610) $ (384,460 $ (263,499) $ 89,0003. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. 9 Answer is not complete. Sales revenue 1'iil'an'aizile expenses: Cost of goods sold s 259.000 9 Commissions Contribution margin Fixed expenses: 259.000 9 513000 {513000} Depreciation Operating income Less interest expense Wages and salaries 3?2,i]i] 0 Utilities 0 39,000 0 Insurance 0 13,000 0 Advertising 0 35,000 @ Rent a rs.s00 0 0 31000 0 1.321500 {13451500} Net income 4. A budgeted balance sheet as of June 3D. 6 Answer is not complete. Liabilities and She reheldere' Equity Total liabilities and shareholders\" equity $ 1.556.345