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 28,000 42,000 55,000 81,000 115,000 June July August September 66,000 46,000 44,000 41,000 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 comissions Fixed: Advertising Rent Wages and salaries Utilities Insurance Depreciation $248,000 26,000 125, 200 13, 400 6, 200 30,000 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 $22,400 in new equipment during May and $56,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,200 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: 90,000 Assets Cash Accounts receivable ($42, 000 February sales; $440,000 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 482,000 129, 600 43, 400 1,030,000 $1,775,000 $ 130, 800 18, 200 960,000 666, 000 $1,775,000 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. 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.) X Answer is not complete. June 44,800 X $ 1,018,000 1,062,800 Quarter 90,000 2,459,000 2,549,000 306.800 248.000 KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May Cash balance, beginning $ 90,000 $ 50,800 X $ Add receipts from customers 589,000 852,000 Total cash available 679,000 902,800 Less disbursements: Purchase of inventory 320,000 380,000 Advertising 248,000 248,000 Rent 26,000 23,000 X Salaries and wages 125,200 125,200 Sales commissions 32,400 46,000 Utilities 13,400 13,400 Dividends paid 18,200 Equipment purchases 22,400 Total disbursements 783,200 858,000 Excess (deficiency) of receipts over disbursements (104,200) 44.800 Financing Borrowings 155,000 X Repayments Interest Total financing 155,000 0 Cash balance, ending $ 50.800 44,800 23,000 X 125,200 26,400 13,400 1,006,800 744.000 72,000 x 3,756,000 X 104,800 40,200 18,200 78,400 5,820,400 (3,271,400) 56,000 798,800 264,000 (155,000) (4,650) (159,650) 104,350 155,000 X (155,000) X (4,650) X (4,650) (3,276,050) 3. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. Answer is not complete. KNOCKOFFS UNLIMITED Budgeted Income Statement For the Three Months Ended June 30 Sales revenue Variable expenses: Cost of goods sold $ 1,048,000 Commissions 104.800 $ 2,620,000 1,152,800 1,467,200 X X Fixed expenses Advertising Advertising Advertising Rent Wages and salaries Utilities Insurance Depreciation Operating income Less interest expense Net income 744,000 72,000 375,600 40,200 18,600 90,000 1,340,400 126,800 4,650 122,150 $ 4. A budgeted balance sheet as of June 30. Answer is complete but not entirely correct. KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Cash $ 104,350 X Accounts receivable 643,000 Inventory 73,600 Prepaid insurance 24,800 Retained earnings x 1,030,000 Fixed assets, net of depreciation 78,400 Depreciation (90,000) Total assets $ 1,864,150 Liabilities and Shareholders' Equity Accounts payable, purchases $ 116,000 Dividends payable 18,200 Common shares 960,000 Fixed assets, net of depreciation X 666,000 Utilities X 122,150 Dividends payable x (18,200) Total liabilities and shareholders' equity $ 1,864,150