Required question 2-4

Chapter 9 Budgeting CASE 9-27 Master Budget with Supporting Schedules ILO2) Knockoffs Unlimited. a nationwide distributor of low-cost imitation designer necklaces, ha 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 dte the company's budgeting practices have been inferior, and. at times, the company has experien a cash shortage. You have been given responsibility for all planning and budgeting. Your f assignment is to prepare a master budget for the next three months, starting April 1. You are an ious to rst and have assembled the information below make a favourab le impression on the president The necklaces are sold to retailers for $10 each. Recent and forecasted sales in units are as follows: January (actual)20000 June50000 26000 July 40,000 August. .. 30000 28000 65,000 September25000 Apri 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: S0% in the month of purchase and the remaining 50% in the following month. All sales are on credit with no dis count and payable within 15 days.!The company has found. however, that only 20% of a mcnths sales are collected by month-end. An additional 70% is collected in the following m uth, and he 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: Sales commissions. 6 of sales 200.000 8000 06,000 1000 3.000 14000 Rent Wages and salaries Utilities the All selling and administrative expenses are paid during the month, in cash. with exception of depreciation and insurance. Insurance is paid on an annual basis, in Novemu each year. The company plans to purchase $16.000 in new equipment during May and sls in new equipment during lune: both purchases will be paid in cash. The company dividends of $15.000 each quarter. payable in the first month of the following quarter company's balance sheet at March 31 is given below: basis, in November of Assets s 74000 Cash Accounts receivable($26,000 February sales $320000 March sales) 346000 Prepaid insurance Fixed assets, net of depreciation $1495 Liabilities and Shareholders Equity Accounts payable.. Dividends payable Common shares Retained eamings Total liabilities and shareholders' equity .100000