Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:

1) A sales budget by month and in total.

2) A schedule of expected cash collections from sales, by month and in total.

3) A merchandise purchases budget in units and dollars. Show the budget by month and in total.

4) A schedule of expected cash disbursements for merchandise purchases, by month and in total.

5) A cash budget. Show the budget by month and in total.

6) A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

7) A budgeted balance sheet as of June 30.

Cravat Sales Company, a nationwide distributor of a designer's silk ties, has just hired you. The company has an exclusive franchise on the distribution of the ties, 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 prepare a master budget for the next three months, starting April 1. You have assembled the following information below. The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows: January (actual) February (actual) March (actual) April May June July August September 20,000 24,000 28,000 35,000 45,000 60,000 40,000 36,000 32,000 The large buildup in sales before and after June is due to Father's Day. Ending inventories are supposed to equal 90% of the next month's sales in units. The ties cost the company $5 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 25% of a month's sales are collected by monthend. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following the sale. Bad debts have been negligible. The company's monthly selling and administrative expenses are given below: Variable: Sales commissions Fixed: Wages and salaries Utilities Insurance Depreciation Miscellaneous $1 per tie $22,000 $14,000 $1,200 $1,500 $3,000 All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $25,000 cash. They company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets: Cash Accounts receivable ($48,000 Feb. sales; $168,000 Mar. sales) Inventory (31,500 units) Prepaid insurance Fixed assets, net of depreciation Total assets Liabilities and Stockholders' Equity: Accounts payable Dividends payable Capital stock Retained earnings Total liabilities and stockholders' equity $14,000 216,000 157,500 14,200 172,700 $574,400 $85,750 12,000 300,000 176,650 574,400 The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $150,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay all the accumulated interest on the loan and as much of the loan balance as possible (in increments of $1,000), while maintaining at least $10,000 in cash. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: 1) A sales budget by month and in total. 2) A schedule of expected cash collections from sales, by month and in total. 3) A merchandise purchases budget in units and dollars. Show the budget by month and in total. 4) A schedule of expected cash disbursements for merchandise purchases, by month and in total. 5) A cash budget. Show the budget by month and in total. 6) A budgeted income statement for the three-month period ending June 30. Use the contribution approach. 7) A budgeted balance sheet as of June 30