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 companys 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)	20,000	June	50,000
February (actual)	26,000	July	30,000
March (actual)	40,000	August	28,000
April	65,000	September	25,000
May	100,000

The large 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 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 months 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 companys monthly selling and administrative expenses are given below:

Variable:
Sales commissions		4	% of sales
Fixed:
Advertising	$	200,000
Rent		18,000
Wages and salaries		106,000
Utilities		7,000
Insurance		3,000
Depreciation		14,000

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 $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. The companys balance sheet at March 31 is given below:

Assets
Cash	$	74,000
Accounts receivable ($26,000 February sales; $320,000 March sales)		346,000
Inventory		104,000
Prepaid insurance		21,000
Fixed assets, net of depreciation		950,000
Total assets	$	1,495,000
Liabilities and Shareholders Equity
Accounts payable	$	100,000
Dividends payable		15,000
Common shares		800,000
Retained earnings		580,000
Total liabilities and shareholders equity	$	1,495,000

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.

d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Disbursements April May June Quarter $ 0 O 0 March purchases April purchases May purchases June purchases 0 0 Total cash disbursements $ 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 For the Three Months Ending June 30 April May June Quarter 0 0 0 0 Cash balance, beginning Add receipts from customers Total cash available Less disbursements: Purchase of inventory Advertising Rent Salaries and wages Sales commissions Utilities 0 0 0 0 0 0 0 0 Dividends paid Equipment purchases Total disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest 0 0 0 0 Total financing Cash balance, ending $ 0 $ 0 $ 0 $ 0 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: Cost of goods sold Commissions 0 Contribution margin 0 Fixed expenses: Advertising Rent Wages and salaries Utilities Insurance Depreciation 0 Operating income 0 Less interest expense Net income $ 0 4. A budgeted balance sheet as of June 30. KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Fixed assets, net of depreciation Cash Accounts receivable Inventory Prepaid insurance Total assets $ 0 Liabilities and Shareholders' Equity Accounts payable, purchases Dividends payable Common shares Retained earnings Total liabilities and shareholders' equity $ 0