Knockoffs Unlimited, a nationwide distributor of low-cost imitation designer nec
ID: 2546828 • Letter: K
Question
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 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.
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 $18,400 in new equipment during May and $46,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $16,200 each quarter, payable in the first month of the following quarter. The company’s balance sheet at March 31 is given below:
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.
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
A schedule of expected cash collections from sales, by month and in total.
A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
A schedule of expected cash disbursements for merchandise purchases, by month and in total.
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.)
A budgeted income statement for the three-month period ending June 30. Use the variable costing approach.
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.
Explanation / Answer
Required Budgets are as prepared below:
Knockoff Unlimited Sales Budget For the quarter ended June 30 Month Particulars April May June Total Budgeted Unit sales 71,000 105,000 56,000 232,000 36,000 Sale Price 10 10 10 10 10 Budgeted sales 710,000 1,050,000 560,000 2,320,000 360,000 Knockoff Unlimited Schedule of expected Cash collections For the quarter ended June 30 Month Particulars April May June Total Beginning Accounts Receivable February sales (32,000*10*10%) 32,000 32,000 March sales (45,000*10*70%) 315,000 315,000 March sales (45,000*10*10%) 45,000 45,000 April Credit Sales 142,000 497,000 71,000 710,000 May Credit Sales 210,000 735,000 945,000 June Credit sales 112,000 112,000 Total collections 489,000 752,000 918,000 2,159,000 Account receivable for June Sale 448,000 Account receivable for May Sale 105,000 Knockoff Unlimited Merchandise Purchase Budget For the quarter ended June 30 Month Particulars April May June Total Budgeted Unit Sales 71,000 105,000 56,000 232,000 36,000 Add: Desired Ending merchandise inventory 42,000 22,400 14,400 14,400 Total needs 113,000 127,400 70,400 246,400 Less: beginning merchandise inventory 28,400 42,000 22,400 28,400 Required purchase 84,600 85,400 48,000 218,000 Unit Cost 4.0 4.0 4.0 4.0 Required dollar purchases $338,400 $341,600 $192,000 $872,000 Knockoff Unlimited Schedule of expected Cash payments For the quarter ended June 30 Month Particulars April May June Total Beginning Accounts Payable (a) $110,800 $110,800 April Purchases (b) $169,200 $169,200 $338,400 May Purchases (c ) $170,800 $170,800 $341,600 June Purchases (d) $96,000 $96,000 Total payments (a+b+c+d) $280,000 $340,000 $266,800 $886,800 Knockoff Unlimited Commission For the quarter ended June 30 Month Particulars April May June Total Budgeted Unit sales 71,000 105,000 56,000 232,000 Sale Price 10 10 10 10 Budgeted sales 710,000 1,050,000 560,000 2,320,000 Sales commisssions (4% of sales) 28,400 42,000 22,400 92,800 2 Knockoff Unlimited Cash Budget For the quarter ended June 30 Month Particulars April May June Total Beginning Cash balance 80,000 50,800 50,800 80,000 Add: Collection from customers $489,000 $752,000 $918,000 $2,159,000 cash available for use $569,000 $802,800 $968,800 $2,239,000 Less: cash Disbursements Merchandise purchase $280,000 $340,000 $266,800 886,800 Advertising 218,000 218,000 218,000 654,000 Rent 21,000 21,000 21,000 63,000 Salaries 113,200 113,200 113,200 339,600 Sales commission 28,400 42,000 22,400 92,800 Utilities 9,400 9,400 9,400 28,200 Equipment purchase 18,400 46,000 64,400 Dividend paid 16,200 16200 Total disbusrement 686,200 762,000 696,800 2,145,000 Cash surplus/Deficit -117,200 40,800 272,000 94,000 Financing Borrowing 168,000 10,000 178,000 Repayment 178,000 -178,000 Interest 3,460 -3,460 3360 Net cash from Financing 168,000 10,000 -181,460 -3,460 100 Budgeted ending cash balance 50,800 50,800 90,540 90,540Related Questions
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