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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) 28,500 June 67,000 43,000 July 47,000 April May 56,000 August 82,000 116,000 45,000 September 42,000 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: The company's monthly selling and administrative expenses are given below: Variable: Sales commissions Fixed: Advertising Rent 4% of sales $251,000 26,500 Wages and salaries 126,400 Utilities Insurance Depreciation 13,800 6,400 31,000 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 $22,800 in new equipment during May and $57,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,400 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: 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 $22,800 in new equipment during May and $57,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,400 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Cash Accounts receivable ($43,000 February sales; $448,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation Total assets Accounts payable Dividends payable Common shares Retained earnings Assets Liabilities and Shareholders' Equity Total liabilities and shareholders' equity $ 91,000 491,000 131,200 44,800 1,035,000 $1,793,000 $ 132,800 18,400 970,000 671,800 $1,793,000 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: 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 April May June Quarter Budgeted sales in units 82,000 116,000 67,000 265,000 Selling price per unit $ 10 $ 10 $ 10 $ 10 Total sales $820,000 S 1,160,000 $ 670,000 $ 2,650,000 b. A schedule of expected cash collections from sales, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May June Quarter February sales S 43,000 $ 43,000 March sales April sales May sales 392,000 56,000 448,000 164,000 574,000 82,000 820,000 232,000 812,000 1,044,000 June sales 134,000 134,000 Total cash collections $ 599,000 $ 862,000 $ 1,028,000 $ 2,489,000 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 June Quarter Budgeted sales in units 82,000 116,000 67,000 265,000 Add: Budgeted ending inventory 46,400 26,800 18,800 18,800 Total needs 128,400 142,800 85,800 283,800 Less: Beginning inventory 32,800 46,400 26,800 32,800 Required unit purchases Unit cost 95,600 96,400 59,000 251,000 SS $ $ 4 $ 4 $ 4 Required dollar purchases $ 382,400 $ 385,600 $ 236,000 $ 1,004,000 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 March purchases $ 132,800 Quarter $ 132,800 April purchases 191,200 191,200 382,400 May purchases 192,800 192,800 385,600 June purchases 118,000 118,000 Total cash disbursements $ 324,000 $ 384,000 $ 310,800 $ 1,018,800 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) 28,500 June 67,000 43,000 July 47,000 April May 56,000 August 82,000 116,000 45,000 September 42,000 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: The company's monthly selling and administrative expenses are given below: Variable: Sales commissions Fixed: Advertising Rent 4% of sales $251,000 26,500 Wages and salaries 126,400 Utilities Insurance Depreciation 13,800 6,400 31,000 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 $22,800 in new equipment during May and $57,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,400 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: 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 $22,800 in new equipment during May and $57,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,400 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Cash Accounts receivable ($43,000 February sales; $448,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation Total assets Accounts payable Dividends payable Common shares Retained earnings Assets Liabilities and Shareholders' Equity Total liabilities and shareholders' equity $ 91,000 491,000 131,200 44,800 1,035,000 $1,793,000 $ 132,800 18,400 970,000 671,800 $1,793,000 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: 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 April May June Quarter Budgeted sales in units 82,000 116,000 67,000 265,000 Selling price per unit $ 10 $ 10 $ 10 $ 10 Total sales $820,000 S 1,160,000 $ 670,000 $ 2,650,000 b. A schedule of expected cash collections from sales, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May June Quarter February sales S 43,000 $ 43,000 March sales April sales May sales 392,000 56,000 448,000 164,000 574,000 82,000 820,000 232,000 812,000 1,044,000 June sales 134,000 134,000 Total cash collections $ 599,000 $ 862,000 $ 1,028,000 $ 2,489,000 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 June Quarter Budgeted sales in units 82,000 116,000 67,000 265,000 Add: Budgeted ending inventory 46,400 26,800 18,800 18,800 Total needs 128,400 142,800 85,800 283,800 Less: Beginning inventory 32,800 46,400 26,800 32,800 Required unit purchases Unit cost 95,600 96,400 59,000 251,000 SS $ $ 4 $ 4 $ 4 Required dollar purchases $ 382,400 $ 385,600 $ 236,000 $ 1,004,000 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 March purchases $ 132,800 Quarter $ 132,800 April purchases 191,200 191,200 382,400 May purchases 192,800 192,800 385,600 June purchases 118,000 118,000 Total cash disbursements $ 324,000 $ 384,000 $ 310,800 $ 1,018,800
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Managerial Accounting
ISBN: 978-1259024900
9th canadian edition
Authors: Ray Garrison, Theresa Libby, Alan Webb
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