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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 anxious 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 forecasted sales in units are as follows: January (actual) 29,000 June 68,000 February (actual) 44,000 July 48,000 March (actual) 57,000 August 46,000 April 83,000 September 43,000 May 117,000 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 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: Variable: Sales commissions 4% of sales Fixed: Advertising $ Rent $ Wages and salaries Utilities Insurance Depreciation es $ $ $ $ 254,000 27,000 127,600 14,200 6,600 32,000 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 $23,200 in new equipment during May and $58,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,600 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets Cash $ 92,000 Accounts receivable ($44,000 February sales; $456,000 March sales) 500,000 Inventory 132,800 Prepaid insurance 46,200 Fixed assets net of depreciation 1,040,000 Total assets $ 1,811,000 Liabilities and Shareholders' Equity Accounts payable $ 134,800 Dividends payable 18,600 Common shares 980,000 Retained earnings 677,600 1,811,000 Total liabilities and shareholders' equity $ 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 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: Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: 1. a. A sales budget by month and in total. b. A schedule of expected cash collections from sales, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 2. A cash budget. Show the budget by month and in total. (Round your intermediate calculations and final answers to the nearest whole dollar. Also, round down your interest calculations to the next whole dollar amount. Cash deficiency, repayments and interest should be indicated 2. A cash budget. Show the budget by month and in total. (Round your intermediate calculations and final answers to the nearest whole dollar. Also, round down your interest calculations to the next whole dollar amount. Cash deficiency, repayments and interest should be indicated by a minus sign.) 3. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. 4. A budgeted balance sheet as of June 30. Req.1: Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: 1.a. A slaes budget by month and in total April May June Budgeted sales in units Quarter 268,000 $10 Selling price per unit $10 $10 $10 Total sales $ $ $ $ 2,680,000 - 1.b. A schedule of expected cash collectionns from sales by month and in total: KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May Quarter June $ February sales March sales April sales May sales June sales Total cash collections $ $ $ $ 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 0 0 0 268,000 Add: Budgeted ending inventory Total needs 268,000 1.c. 1.c. 1.d. 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 268,000 Budgeted sales in units 0 0 0 Add: Budgeted ending inventory Total needs 268,000 Less: Beginning inventory 0 0 0 Required unit purchases Unit cost 268,000 $4 $4 $4 $4 Required dollar purchases A schedule of expected cash disbursements for merchandise pruchases, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Disbursements April May June Quarter March purchases April purchases May purchases June purchases Total cash disbursements $ $ $ $ $ A Req. 2: A cash budget. Show the budget by month and in total. (Round your intermediate calculations and final answers to the nearest whole dollar. Also, round down your interest calculations to the next whole dollar amount. Cash deficiency, repayments and interest should be indicated by a minus sign.) KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April May June Quarter Cash balance, beginning Add receipts from customers Total cash available Less disbursements: Purchase of inventory Advertising - Rent Salaries and wages Sales commissions Utilities Dividends paid Equipment purchases. Total disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending - 3.a. A budgeted income stateent for the three-month period ending June 30. Use the varialbe costing approch. OCKOFFS UNLIMITED Budgeted Income Statement For the Three Months Ended June 30 Sales revenue Variable expenses: Cost of goods sold Commissions Contribution margin Fixed expenses: Advertising Rent Wages and salaries Utilities Insurance Depreciation Operating income Less interest expense Income before tax Req. 4: A budgeted balance sheet as of June 30: KOFFS UNLIMITED Budgeted Balance Sheet 30-6 Assets Cash Accounts receivable Inventory Prepaid insurance Fixed assets, net of depreciation Total assets Liabilities and Shareholders' Equity Accounts payable, purchases Dividends payable Common shares Retained earnings Total liabilities and stockholders' equity $ $