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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 27,500 June 41,000 July 54,000 August 80,000 September 114,000 65,000 45,000 43,000 40,000 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 soles are collected by month-end. An additional 70% is collected in the following month and the remaining 10% collected in the second month following sele. Bad debts have been negligible. The company's monthly selling and administrative expenses are given below: 41 of sales Variables Sales commissione Fixed Advertising Rent Wages and salarios Utilities Insurance Depreciation $245,000 25,500 124,000 13,000 6,000 29,000 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 $22,000 in new equipment during May and $55,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets Cash 89,000 Accounts receivable (541,000 February sales: $432,000 Maroh sales) 473,000 Inventory 128,000 Prepaid insurance 42.000 Pixed assets, net of depreciation 1,025,000 Total assets 51,757.000 Liabilities and shareholders' Equity Accounts payable $ 128,800 Dividenda payable 18,000 Common shares 950,000 Retained earnings 660,200 Total abilities and shareholders' equity $1,757,000 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 loon balance for that month. Required: 1. Prepare a master budget for the three month period ending June 30, include the following detailed budgets: a. A sales budget by month and in total Sales budget Budgeted sales in units Selling price per unit Total sales April 80,000 $ 10 $ $ 800,000 $ May 114,000 10 $ 1.140,000 $ June 65,000 10 $ 650,000 $ Quarter 259.000 10 2.590,000 b. A schedule of expected cash collections from sales, by month and in total. February sales March sales April sales May sales June sales Total cash collections KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May June Quarter $ 41,000 $ 41,000 378,000 54,000 1 432.000 160,000 560,000 80,000 800.000 228,000 798,000 1,025,000 130,000 130.000 579,000 $ 842,000 5 1,008,000 5 2.429,000 June c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total, KNOCKOFFS UNLIMITED Merchandise Purchases Budget April May Quarter Budgeted sales in units 80,000 114,000 65.000 259.000 Add: Budgeted ending inventory 45,600 26,000 18.000 89,800 Total needs 125,600 140,000 83.000 348,600 Loss: Beginning inventory 32,000 45,600 26.000 103,600 Required unit purchases 93,600 94.400 57.000 245,000 Unit cost $ 5 4 $ 4 S Required dollar purchases $ 374,400 $ 377,600 $ 228,000 $ 980,000 4 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 March purchases April purchases May purchases June purchases Total cash disbursements 0 0 0 $ 0 0 $ 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 O wherever it is required.) June Quarter 0 0 0 KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May Cash balance, beginning Add receipts from customers Total cash available 0 Less disbursements: Purchase of inventory Advertising Rent Salaries and wages Sales commissions Utilities Dividends paid Equipment purchases Total disbursements 0 Excess (deficiency) of receipts over disbursements 0 Financing Borrowings Repayments Interest Total financing 0 Cash balance, onding $ 0 s 0 0 0 0 0 0 0 0 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 Contribution margin 0 Fixed expenses Advertising Rent Wages and salaries Utilities Insurance Depreciation 0 0 0 Operating income Less interest expense Not income $ 0 4. A budgeted balance sheet as of June 30. KNOCKOFFS UNLIMITED Budgeted Balance Sheet Juno 30 Assets Cash Accounts receivable Inventory Prepaid insurance Fixed assets, net of depreciation 0 Total assets $ Liabilities and Shareholders' Equity Accounts payable, purchases Dividends payable Common shares Retained earnings Total liabilities and shareholders' equity $ 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 27,500 June 41,000 July 54,000 August 80,000 September 114,000 65,000 45,000 43,000 40,000 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: Variables Sales commissions Pixed Advertising Rent Wages and salaries Utilities Insurance Depreciation 4 of sales $245,000 25,500 124,000 13,000 6,000 29,000 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 $22,000 in new equipment during May and $55,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: 89,000 Assets Cash Accounts receivable ($41,000 February sales $432,000 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 473,000 128,000 42,000 1,025,000 $1,757,000 $ 128,800 18,000 950,000 660,200 $1,757,000 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. Required: 3. A budgeted income statement for the three- month period ending June 30. Use the variable costing approach. $ 2,590,000 0 KNOCKOFFS UNLIMITED Budgeted Income Statement For the Three Months Ended June 30 Sales revenue Variable expenses: Cost of goods sold Commissions Contribution margin Fixed expenses: Advertising Rent Wages and salaries Utilities Insurance Depreciation 2,590,000 0 2,590,000 Operating income Less interest expense Net income $ 2,590,000 4. A budgeted balance sheet as of June 30. KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Cash Accounts receivable Inventory Prepaid insurance Fixed assets, net of depreciation 0 Total assets $ Liabilities and Shareholders' Equity Accounts payable, purchases Dividends payable Common shares Retained earnings Total liabilities and shareholders' equity $ 0