- Knockoffs Unlimited A Nationwide Distributor Of Low Cost Imitation Designer Necklaces Has An Exclusive Franchise On Th 1 (455.04 KiB) Viewed 9 times
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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) April May 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. Variable: Sales commissions Fixed: 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: Advertising 28,000 June 42,000 July 55,000 August 81,000 September 115,000 Rent Wages and salaries Utilities Insurance Depreciation 66,000 46,000 44,000 41,000 4% of sales $248,000 26,000 125, 200 13,400 6,200 30,000
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 $22,400 in new equipment during May and $56,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $18,200 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 ($42,000 February sales; $440,000 March sales) Inventory Prepaid insurance Fixed assets, net of depreciation Total assets Assets Liabilities and Shareholders' Equity Accounts payable Dividends payable Common shares Retained earnings Total liabilities and shareholders' equity $ 90,000 482,000 129,600 43,400 1,030,000 $1,775,000 $ 130,800 18,200 960,000 666,000 $1,775,000 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.
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 Budgeted sales in units Selling price per unit Total sales February sales March sales April sales May sales June sales Total cash collections $ April $ 0 $ May 0 $ b. A schedule of expected cash collections from sales, by month and in total. KNOCKOFFS UNLIMITED Schedule of Expected Cash Collections April May 0 $ 0 $ June June $ 0 $ 0 $ Quarter Quarter 0 0 0 0 0 0 0
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. Budgeted sales in units Total needs Required unit purchases Unit cost Required dollar purchases KNOCKOFFS UNLIMITED Merchandise Purchases Budget May March purchases April purchases May purchases June purchases Total cash disbursements $ April $ 0 0 0 $ 0 $ KNOCKOFFS UNLIMITED Schedule of Expected Cash Disbursements April May 0 0 $ 0 0 $ June June d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. $ 0 0 $ 0 0 $ Quarter Quarter 0 0 0 0 0 0 0 0
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. Do not leave any empty spaces; input a 0 wherever it is required.) 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 KNOCKOFFS UNLIMITED Cash Budget For the Three Months Ending June 30 April $ 0 0 0 0 0 $ May 0 0 0 0 0 $ June 0 0 0 0 0 $ Quarter 0 0 0 0 0
3. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach. KNOCKOFFS UNLIMITED Budgeted Income Statement For the Three Months Ended June 30 Variable expenses: Fixed expenses: $ 0 0 0 0 0
4. A budgeted balance sheet as of June 30. Total assets KNOCKOFFS UNLIMITED Budgeted Balance Sheet June 30 Assets Liabilities and Shareholders' Equity Total liabilities and shareholders' equity $ $ CA 0 0