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: January (actual) February (actual) March (actual) April May 28,508 June 43,000 July 56,000 August 82,000 September 116,000 67,000 47,000 45,000 42,000 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 sele. Bad debts have been negligible The company's monthly selling and administrative expenses are given below: Variable: Sales commissions Fixed: Advertising Rent Wages and salaries Utilities Insurance Depreciation 44 of sales $251,000 26,500 126,400 13,800 6,400 31,000 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 $22,800 in new equipment during May and $57,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,400 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets Cash 91,800 Accounts receivable ($43,600 February sales: $448,000 March sales) 491,000 Inventory 131,200 Prepaid insurance 44,800 Fixed assets, net of depreciation 1,835,000 Total assets $1,793, 000 Liabilities and Shareholders' Equity Accounts payable $ 132,800 Dividends payable 18,400 Common shares 970,000 Retained earnings 671,800 Total liabilities and shareholders' equity $1,793,000 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 Quarter 265.000 Sales budget Budgeted sales in units Selling price per unit Total sales April 82,000 $ 10 $ 820,000 May 116.000 10 $ 1,160,000 $ June 67,000 10 $ 670,000 $ $ 10 $ 2,650,000 February sales March sales April sales May sales June sales Total cash collections KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May June Quarter $ 43,000 $ 43,000 392,000 56,000 448,000 164,000 574,000 82,000 820,000 232,000 812,000 1,044,000 134,000 134,000 $ 599,000 $ 862,000 $ 1,028,000 $ 2,489,000 c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. Budgeted sales in units Add: Budgeted ending inventory Total needs Less: Beginning inventory Required unit purchases Unit cost Required dollar purchases KNOCKOFFS UNLIMITED Merchandise Purchases Budget April May 82,000 116,000 46,400 26,800 128,400 142,800 32,800 46,400 95,600 96,400 $ 40 $ 4 $ 382,400 $ 385,600 $ June Quarter 67,000 265,000 18,800 18,800 85,800 283,800 26,800 32,800 59,000 251,000 4 $ 4 236,000 $ 1,004,000 $ d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. April KNOCKOFFS UNLIMITED Schedule of Expected Cash Disbursements May $ 132,800 191,200 191,200 192,800 March purchases April purchases May purchases June purchases Total cash disbursements June Quarter $ 132,800 382,400 192,800 385,600 118,000 118,000 310,800 $ 1,018,800 $ 324,000 $ 384,000 $ 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.) empty spaces; input a 0 wherever it is required.) June Quarter 50,200 $ 91,000 1,028,000 2,489,000 1,078,200 2,580,000 KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May Cash balance, beginning $ 91,000 $ 50,100 $ Add receipts from customers 599,000 862,000 Total cash available 690,000 912,100 Less disbursements: Purchase of inventory 324,000 384,000 Advertising 251,000 251,000 Rent 26,500 26,500 Salaries and wages 126,400 126,400 Sales commissions 32,800 46,400 Utilities 13,800 13,800 Dividends paid Equipment purchases Total disbursements 774,500 848,100 Excess (deficiency) of receipts over disbursements (84,500) 64,000 Financing: Borrowings Repayments Interest Total financing 0 0 Cash balance, ending $ (84,500) $ 64,000 $ 310,800 251,000 26,500 126,400 26,800 13,800 1,018,800 753,000 79,500 379,200 106,000 41,400 755,300 322,900 2,377,900 202,100 0 322,900 $ 0 202,100 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 Sales revenue Variable expenses: 0 0 Fixed expenses: 4. A budgeted balance sheet as of June 30. KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Total assets $ 0 Liabilities and Shareholders' Equity Total liabilities and shareholders' equity $ 0