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 23,000 32,000 45,000 71,000 105,000 June July August September 56,000 36,000 34,000 31,000 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: Return to question 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 23,000 32,000 45,000 71,000 105,000 June July August September 56,000 36,000 34,000 31,000 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 $218,000 21,000 113,200 9,400 4,200 20,000 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 $18,400 in new equipment during May and $46,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $16,200 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: $ 80,000 Assets Cash Accounts receivable ($32,000 February sales; $360,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation Total assets Liabilities and Shareholders' Equity Accounts payable Dividends payable Common shares Retained earnings Total liabilities and shareholders' equity 392,000 113,600 29,400 980,000 $1,595,000 $ 110,800 16,200 860,000 608,000 $1,595,000 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. Cash Budget For the Three Months Ending June 30 April May $ 80,000 $ 50,800 X $ June Quarter 489,000 752,000 50,800 X $ 918,000 968,800 80,000 2,159,000 2,239,000 569,000 802,800 Cash balance, beginning Add receipts from customers Total cash available Less disbursements: Purchase of inventory Advertising Rent 886,800 340,000 218,000 21,000 266,800 218,000 654,000 63,000 Salaries and wages 280,000 218,000 21,000 113,200 28,400 9,400 16,200 113,200 339,600 21,000 113,200 22,400 9,400 Sales commissions 92,800 42,000 9,400 > 28,200 0 0 0 o 18,400 762,000 40,800 686,200 (117,200) 16,200 64,400 2,145,000 94,000 46,000 696,800 272,000 Utilities Dividends paid Equipment purchases Total disbursements Excess (deficiency) of receipts over disbursements Financing Borrowings Repayments Interest Total financing Cash balance, ending 168,000 X 10,000 0 178,000 X 0 0 0 X 0 X 178,000 3,460 X 181,460 453,460 $ 178,000 X (3,460) 352,540 446,540 168,000 50,800 10,000 50,800 $ $ $ 3. A budgeted income statement for the three-month period ending June 30. Use the variable costing approa Answer is not complete. 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 Rent X Other expenses x 0 Operating income 0 Less interest expense 4. A budgeted balance sheet as of June 30. X Answer is not complete. KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Cash Accounts receivable Inventory Prepaid insurance Fixed assets, net of depreciation Inventory Fixed assets, net of depreciation Total assets $ 0 Liabilities and Shareholders' Equity Accounts payable, purchases Dividends payable Common shares Common shares Retained earnings Retained earnings