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 to prepare a master budget for the next three months, starting April 1. You are eager to make 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) 27,000

February (actual) 40,000

March (actual) 53,000

April 79,000

May 113,000

June 64,000

July 44,000

August 42,000

September 39,000

The larger buildup in sales before and during May is due to Mothers Day. Ending inventories should be equal to 40% of the next months sales in units the necklaces cost of the company $4 each. Purchases are paid 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 withing 15 days. The company has found, however, that only 20% of a months sales are collected the second month following sale. Bad debts have been negligible. The companys monthly selling and administrative expenses are given below:

Variable:

Sales commissions 4% of sales

Fixed:

Advertising 242,000

Rent 25,000

Wages and salaries. 122,800

Utilities. 12600

Insurance 5800

Depreciation 28000

All selling and administrative expenses are paid during the month, in cash, with exception of depreciation and insurance. Insurance is paid on an annual basis, in November of each year. The company plans to purchase 21,600 in new equipment during May and 54,000 in new equipment during June; both purchases will be paid in cash. The companys balance sheet at March 31 is given below:

Assets

Cash 88,000

Accounts receivable (40,000 February sales; 424,000 March sales) 464,000

Inventory 126,400

Prepaid Insurance 40,600

Fixed assets, net of depreciation 1,020,000

Total assets 1739000

Liabilities and Shareholders Equity

Accounts payable 126800

Dividends payable 17800

Common Share 940000

Retained earnings 654400

Total liabilities and shareholders equity 1739000

The company wants a minimum ending cash balance each month of 50,000. All borrowing is done at the beginning of the month, with and repayments made at the end of the ont. 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:

Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:

1.a. A sales budget by month and in total

b. A schedule of expected cash collections from sales, by month and in total

c. A merchandise purchase budget in units and in dollars. Show the budget by month and in total

d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A cash budget. Show the budget by month and in total

3. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach

4. A budgeted balance sheet as of June 30.