Question

R19 X fx 134800 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: T January (actual) February (actual) March (actual) April Nay 29,000 44,000 57.000 83,000 117,000 June July August September 68,000 48,000 46,000 43,000 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: 45 of sales Variable: Sales commissions Fixed: Advertising Rent Vages and salaries Utilities Insurance Depreciation $ 254,000 $ 27.000 $ 127.600 $ 14, 200 $ 6, 600 $ 32.000 Budget Required 1 Required 2 Requ

Answer 1

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Knockoffs								Note
Sales Budget	February	March	April	May	June	April- Jun Qtr.
Sales (units)	44,000.00	57,000.00	83,000.00	117,000.00	68,000.00	268,000.00		A
Sell Price	10.00	10.00	10.00	10.00	10.00			B
Sales Budget	440,000.00	570,000.00	830,000.00	1,170,000.00	680,000.00	2,680,000.00		C=A*B
Collection Budget	February	March	April	May	June	April- Jun Qtr.
Sales Budget	440,000.00	570,000.00	830,000.00	1,170,000.00	680,000.00	2,680,000.00		See C
20% collected in same month			166,000.00	234,000.00	136,000.00	536,000.00		D= C*20%
70% collected in next month			399,000.00	581,000.00	819,000.00	1,799,000.00		E= 70% of C of previous month
10% collected in second month			44,000.00	57,000.00	83,000.00	184,000.00		F= 10% of C of previous to previous month
Total cash receipts			609,000.00	872,000.00	1,038,000.00	2,519,000.00		G=D+E+F
Purchase Budget		March	April	May	June	April- Jun Qtr.	July
Sales (units)		57,000.00	83,000.00	117,000.00	68,000.00	268,000.00	48,000.00	See A
Add: Desired Ending Inventory		33,200.00	46,800.00	27,200.00	19,200.00			H= 40% of A of next month
Total goods needed		90,200.00	129,800.00	144,200.00	87,200.00			I= A+H
Less: Expected Beginning Inventory		22,800.00	33,200.00	46,800.00	27,200.00			J= 40% of A
Inventory Purchase Budget		67,400.00	96,600.00	97,400.00	60,000.00	254,000.00		K=I-J
Payment Budget		March	April	May	June	April- Jun Qtr.
Inventory Purchase Budget		67,400.00	96,600.00	97,400.00	60,000.00	254,000.00		See K
Purchase price		4.00	4.00	4.00	4.00			L
Purchase cost		269,600.00	386,400.00	389,600.00	240,000.00	1,016,000.00		M=K*L
50% paid in same month			193,200.00	194,800.00	120,000.00	508,000.00		N= M*50%
50% paid in next month			134,800.00	193,200.00	194,800.00	522,800.00		O= 50% of M of previous month
Payment for inventory			328,000.00	388,000.00	314,800.00	1,030,800.00		P=N+O
Sales Commission Budget			April	May	June	April- Jun Qtr.
Sales Budget			830,000.00	1,170,000.00	680,000.00	2,680,000.00		See C
Sales Commission @ 4%			33,200.00	46,800.00	27,200.00	107,200.00		Q= C*4%
Selling and Administrative expense Budget			April	May	June	April- Jun Qtr.
Sales Commission			33,200.00	46,800.00	27,200.00	107,200.00
Advertising			254,000.00	254,000.00	254,000.00	762,000.00
Rent			27,000.00	27,000.00	27,000.00	81,000.00
Wages and Salaries			127,600.00	127,600.00	127,600.00	382,800.00
Utilities			14,200.00	14,200.00	14,200.00	42,600.00
Insurance			6,600.00	6,600.00	6,600.00	19,800.00
Depreciation			32,000.00	32,000.00	32,000.00	96,000.00
Selling and Administrative expense Budget			494,600.00	508,200.00	488,600.00	1,491,400.00
Cash Disbursements budget			April	May	June	April- Jun Qtr.
Payment for inventory			328,000.00	388,000.00	314,800.00	1,030,800.00		See P
Sales Commission			33,200.00	46,800.00	27,200.00	107,200.00		See Q
Advertising			254,000.00	254,000.00	254,000.00	762,000.00
Rent			27,000.00	27,000.00	27,000.00	81,000.00
Wages and Salaries			127,600.00	127,600.00	127,600.00	382,800.00
Utilities			14,200.00	14,200.00	14,200.00	42,600.00
Insurance			6,600.00	6,600.00	6,600.00	19,800.00
Total Cash Disbursements			790,600.00	864,200.00	771,400.00	2,426,200.00