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: June July January (actual) February (actual) March (actual) April May 22,000 30,000 43,000 69,000 103,000 August September 54,000 34,000 32,000 29,000 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: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Wages and salaries Utilities Insurance Depreciation $212,000 20,000 110,800 8,600 3,800 18,000 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 $17,600 in new equipment during May and $44,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,800 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets $ 78,000 Cash Accounts receivable ($30,000 February sales; $344,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation Total assets 374,000 110,400 26,600 970,000 $1,559,000 Y IV, VUU $1,559,000 Fixed assets, net or aepreciation Total assets Liabilities and Shareholders' Equity Accounts payable Dividends payable Common shares Retained earnings Total liabilities and shareholders' equity $ 106,800 15,800 840,000 596, 400 $1,559,000 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. Sales budget Budgeted sales in units Selling price per unit Total sales April 69,000 $ 10 $ $ 690,000 $ May 103,000 10 $ 1,030,000 $ June 54,000 10 $ Quarter 226,000 10 2,260,000 540,000 $ b. A schedule of expected cash collections from sales, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May June $ 30,000 77,400 Quarter $ 30,000 77,400 0 February sales March sales April sales May sales June sales Total cash collections 0 0 $ 107,400 $ 0 $ 0 $ 107,400 c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. KNOCKOFFS UNLIMITED Merchandise Purchases Budget April May June Quarter Budgeted sales in units Total needs 0 0 0 0 0 0 0 0 Required unit purchases Unit cost Required dollar purchases $ 0 $ 0 $ 0 $ 0 d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Disbursements April May $ 106,800 June Quarter $ 106,800 0 March purchases April purchases May purchases June purchases Total cash disbursements 0 0 106,800 $ 106,800 $ 0 $ 0 $ 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.) KNOCKOFFS UNLIMITED Cash Budget Cartha Tha Manth Endin luna 2n 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.) KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May $ 78,000 $ 50,000 Quarter June 50,000 $ 78,000 50,000 50,000 0 Cash balance, beginning Add receipts from customers Total cash available Less disbursements: Purchase of inventory Advertising Rent Salaries and wages Sales commissions 0 0 0 0 Utilities Dividends paid Equipment purchases Total disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest 78,000 50,000 50,000 0 0 0 0 Total financing Cash balance, ending 0 0 $ 78,000 $ 50,000 $ 50,000 $ 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 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 Variable expenses: 0 0 Fixed expenses: 0 0 $ 0 4. A budgeted balance sheet as of June 30. KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets