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 22,000 30,000 43,000 69,000 103,000 June 54,000 July 34,000 August 32,000 September 29,000 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: 49 of sales Variable: Sales commissions Fixed: Advertising Rent Wages and salaries Utilities Insurance Depreciation $ 212,000 20,000 110,800 8,600 3,800 18,000 All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance. Insurance 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 $17,600 in new equipment during May and $44,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,800 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: $ 78,000 Assets Cash Accounts receivable ($30,000 February sales; $344,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation 374,000 110,400 26,600 970,000 Total assets $1,559,000 $ Liabilities and Shareholders' Equity Accounts payable Dividends payable Common shares Retained earnings 106,800 15,800 840,000 596,400 Total liabilities and shareholders' equity $1,559,000 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 Variable expenses: 0 0 Fixed expenses: 0 0 $ 0 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 22,000 30,000 43,000 69,000 103,000 June 54,000 July 34,000 August 32,000 September 29,000 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: 49 of sales Variable: Sales commissions Fixed: Advertising Rent Wages and salaries Utilities Insurance Depreciation $ 212,000 20,000 110,800 8,600 3,800 18,000 All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance. Insurance 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 $17,600 in new equipment during May and $44,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,800 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: $ 78,000 Assets Cash Accounts receivable ($30,000 February sales; $344,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation 374,000 110,400 26,600 970,000 Total assets $1,559,000 $ Liabilities and Shareholders' Equity Accounts payable Dividends payable Common shares Retained earnings 106,800 15,800 840,000 596,400 Total liabilities and shareholders' equity $1,559,000 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 Variable expenses: 0 0 Fixed expenses: 0 0 $ 0