MASTER BUDGET FACTS AND FIGURES: You have just been hired as a management trainee by Toronto-based Capri Fashions Inc., a nationwide distributor of designer Caps. The company has exclusive distribution of the Caps, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to Make a Master Budget for the next 12 months starting July 1, 2023. You are anxious to make a favorable impression on the president and have assembled the information below. The company purchases the Caps from a factory in Montreal which costs the company $5.00 each (all on account). Purchases are made based on the current month's sales in units plus an ending inventory to equal 40% of the next month's sales in units. Purchases are paid for 40% in the month of purchase and the remaining 60% in the following month. The Caps are sold at wholesale to other resellers as well as through own stores to individual customers. 80% of total sales, all on account are made as wholesale for $8.00 each and $15.00 each to the individual customers in the mall stores (20% of total sales, all in cash). Recent and forecasted total sales in units are as follows:

MonthsUnitsMonthsUnitsMarch 2023 Actual20,000June 2023 Actual25,000April 2023 Actual24,000July 2023 Budgeted20,000May 2023 Actual26,000August Budgeted24,000

The company has found that only 60% of a month's credit sales are collected in the following month, and the remaining 40% is collected in the second month following the sales. Bad debts have been negligible.

The company is planning to open a new store in a shopping mall in August 2023 and expects to increase its sales by 10% every month from September to December 2023 and then decline by 10% during January and February 2024 and afterward the sales will be unchanged.

Opening the new store will cost the company $50,000 in advertising during July 2023. Furniture and Fixtures will cost $70,000 during July. The company is planning to buy sales equipment costing a total of $320,000 in July, payment in 4 instalments starting July and every 3 months thereafter. The rent for the new store will be $4,500 a month starting July 2023. A new Sales Manager will be hired at a monthly salary of $5,000 per month and she will start in August 2023. The additional costs of running the new store will be $4,000 per month when the store opens. To cover all the extra costs due to the new store, the president of the company decided to provide an interest-free loan of $50,000 to the company on July 1, 2023, with the condition that the company will repay the loan in full at once whenever there is sufficient cash balance available after the bank loan is repaid.

The company's monthly operating expenses are given below:

Variable cost:

Sales Commission (retail stores only) $2.00 per Cap sold

Fixed Costs:

Wages and Salaries: $30,000

Utilities: 4,000

Insurance: 1200

Depreciation: 3,000

Office Rent: 4,000

Miscellaneous Expenses: 3,000

All operating expenses are paid during the month in cash. The company pays a salary of $7,000 each month to the owner Henry Paul, payable on the 1st week of next month. The company's balance sheet on June 30, 2023, is given below:

ASSETS

Cash: $20,000

Accounts Receivable ($66,560 from May Sales; $200,000 from June sales): 266,560

Inventory (8,000 Units): 40,000

Fixed Assets Net of depreciation:250,000

Total Assets: 576,560

Liabilities and Shareholder's Equity

Accounts Payable: $69,000

Salaries Payable: 7,000

Retained Earnings: 300,000

Total Liabilities and Shareholder's Equity: 200,560

The company maintains a policy to have a minimum ending cash balance of $20,000 at the end of each month. It has a Line of Credit agreement with the Popular Bank of Canada that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total line of credit of $100,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. Whenever possible, the company would repay the bank as much of the loan as possible (in increments of $1,000), while still retaining at least $20,000 in cash balance. Interest on the loan is paid only at the time of repayment of the loan and only on the repayment amount.

Required: Make a master budget for the 12 months from July 1, 2023 to June 30, 2024. Include the following detailed budgets:

1. Make a Cash Budget. Show the budget by month.