Tookie Corp.distributes a new gaming console, called Nintendo, in California. The following information was gathered to prepare the budget for the third quarter.

Nintendoes are budgeted to sell for an average price of $180. Unit sales are expected to be as follows:

June

10,000 Nintendoes

July

10,500 Nintendoes

August

10,800 Nintendoes

September

12,600 Nintendoes

October

14,600 Nintendoes

Sales are made for cash and on credit. The following collection pattern is used to estimate monthly cash collections:

Cash sales

25%

Credit salesmonth of sale

50

Credit salesmonth after sale

23

Uncollectible

2

Total

100%

The company tries to maintain an inventory of 25% of the following month's sales. The company expects to have 2,500 Nintendoes on hand on June 30. Tookie pays an average of $120 per Nintendo.

The company pays for 70% of its purchases in the month of purchase and the remaining 30% in the month after purchase.

The following monthly selling and administrative expenses are planned for the quarter, though advertising will have a one-time $50,000 increase in August to secure orders for the Xmas season. Depreciation for August and September will increase due to additional capital assets to be purchased in August (see below).

July

Aug

Sept

Depreciation

$10,000

$32,500

$32,500

Rent

50,000

50,000

50,000

Advertising

60,000

110,000

84,000

Salaries

300,000

300,000

300,000

Bad debts

37,800

38,880

45,360

On August 1^st , the company plans to purchase $500,000 of new office equipment and a delivery truck. Additional depreciation is already accounted for in the above selling and administrative expenses.

Tookie will collect the full $500,000 accounts receivable balance of June 30^th in July. Tookie will pay the $340,000 of June Accounts Payable in August.

Tookie wants to maintain a minimum cash balance of $100,000. An open line of credit at a local bank allows the company to borrow up to $300,000 per quarter in $1,000 increments.

All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest is paid only when principal is repaid. The interest rate is 12% per year.

Tookie's tax rate is 30%.

The June 30 balance sheet is budgeted as follows:

June 30

Cash

$ 70,000

Accounts receivable

500,000

Inventory

300,000

Plant & equipment

600,000

Accumulated depreciation

(150,000)

Total assets

$1,320,000

Accounts payable

$340,000

Common stock

400,000

Retained earnings

580,000

Total liabilities and equities

$1,320,000

1. Create Tookie's master budget for the third quarter (Sales Budget, Selling and Administrative Expense Budget, Inventory Purchases Budget, Ending Inventory Budget, Cash Receipts Budget, Cash Payments for Inventory Budget, and Cash Budget)
2. Create pro-forma income statement for the third quarter.
3. Create pro-forma balance sheet as of September 30.
4. Sales manager proposes to increase the selling price of each Nintendo by $10, to $190. This increase will result in sales in units to drop by only 10%.
5. Which costs do you expect to decline with 10% decline in number of units sold? Explain.
6. What is your recommendation about this proposal? Explain

Here is a screenshot of the written question. I can also email a word doc.

1 l Tookie Coggdistiibutes a new gaming console, called Nintendo, in California. The following information was gathered to prepare the budget for the third quarter. -Nintendoes are budgeted to sell for an average price of $180. Unit sales are expected to be as follows: June 10,000 July 10,500 August 10,800 Nin gripes September 12,600 Nintendoes October 14,600 -Sales are made for cash and on credit. The following collection pattern is used to estimate monthly cash collections: Cash sales 25% Credit salesimonth of sale 50 Credit salesimonth aer sale 23 Uncollectible 2 Total 1 00% -The company tries to maintain an inventory of 25% of the following month's sales. The company expects to have 2,500 Nintendoes on hand on June 30. Tookie pays an average of $120 per Nintendo. -The company pays for 70% of its purchases in the month of purchase and the remaining 30% in the month aer purchase. -The following monthly selling and administrative expenses are planned for the quarter, though advertising will have a one-time $50,000 increase in August to secure orders for the Xmas season. Depreciation for August and September will increase due to additional capital assets to be purchased in August (see below). JULY AUG SEPT DEPRECIATION $10,000 $32,500 $32,500 RENT 50,000 50,000 50,000 ADVERTISING 60,000 110,000 84,000 SALARIES 300,000 300,000 300,000 BAD DEBTS 37,800 38,880 45,360 -On August athe company plans to purchase $500,000 of new ofce equipment and a delivery truck. Additional depreciation is already accounted for in the above selling and administrative expenses. - Tookie will collect the full $500,000 accounts receivable balance of June 30'11 in July. Tookie will pay the $340,000 of June Accounts Payable in August. -Tookie wants to maintain a minimum cash balance of $100,000. An open line of credit at a local bank allows the company to borrow up to $300,000 per quarter in $1,000 increments. -All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest is paid only when principal is repaid. The interest rate is 12% per year. -Tookie's tax rate is 30%. -The June 30 balance sheet is budgeted as follows: June 30 Cash 38 70,000 Accounts receivable 500,000 Inventory 300,000 Plant & equipment 600,000 Accumulated depreciation 150,000 Total assets $ 1,320,000 Accounts payable $ 340,000 Common stock 400,000 Retained earnings 580,000 Total liabilities and equities $ 1,320,000 Questions a. Prepare all components of Tookie's master budget for the third quarter (Sales Budget, Selling and Administrative Expense Budget, Inventory Purchases Budget, Ending Inventory Budget, Cash Receipts Budget, Cash Payments for Inventory Budget, and Cash Budget) b. Prepare a pro-forma income statement for the third quarter. c. Prepare a pro-forma balance sheet as of September 30. d. Sales manager proposes to increase the selling price of each Nintendo by $10, to $190. This increase will result in sales in units to drop by only 10%. i. Which costs do you expect to decline with 10% decline in number of units sold? Explain. ii. What is your recommendation about this proposal? Explain