Question 14 Management Accounting - Budgeting: Megatron Sports Company (MSC hereafter) is a retailer and sells basketball sneakers in Cybertan City. The company is preparing budgets for the fourth quarter of 2020. For budgeting purposes, MSC estimates that cost of goods sold is 70% of sales. The following information has been provided: Month October November December January 2021 Sales Volume (unit) 3,000 4,000 3,500 3,800 Sales Revenue ($) 900,000 1,200,000 1,050,000 1,140,000 Cash Collection ($) 780,000 1,080,000 1,110,000 1,104,000 Inventory purchase: The inventory policy indicates that the desired ending inventory for each month should be sufficient to cover 60% of the next month's sales. The amount of inventory on hand on 30 September 2020 is exactly 60% of next month's sales. The company has a current payment policy for inventory purchase as follows: 60% of each month's purchases are cash purchase. 30% of each month's purchases will be paid in the following month. 10% of each month's purchases will be paid in the second month following. On 30 September 2020, the accounts payable balance was $256,200 (of which $37,800 is from August), which will be paid out to the supplier in October and November. Selling and administration: The selling and administrative expense includes a depreciation expense of $50,000 each month. The selling and administrative expenses are paid for in the month incurred. The cash payment for selling and administrative expense is $125,000 for October, $135,000 for November and $145,000 for December. Required: a) Prepare an inventory purchase budget in dollars for the fourth quarter of 2020 using the template in the Answer Booklet (Round your answers to the nearest whole number). (5 marks) b) Prepare a projected income statement for the fourth quarter of 2020 using the template in the Answer Booklet (Round your answers to the nearest whole number). (2 marks) c) The CEO of MSC, Fallen, recently told the sales & marketing department that the budget for sales would be increased by 20% for the coming year (i.e., 2021) and the department manager's bonus would be based on achieving the sales target. (1) What budgeting style is MSC adopting? (1 mark) (ii) What is one potential behavioural effect of setting the sales target in this way