ACCT3500 - HR Managerial Accounting Assignment

Assignment Task

You have just been hired as a management trainee by Toronto-based Modern Fashions Inc. , a nationwide distributor of designer Caps. The company has exclusive distribution of the Caps, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a Master Budget for the next 12 months starting April 1, 2023 . You are anxious to make a favourable impression on the president and have assembled the information below.

The company purchases the Caps from a factory in Montreal which costs the company $5.00 each (all on account). Purchases are made based on the current month’s sales in units plus an

ending inventory to equal 40% of the next month's sales in units. Purchases are paid for 40% in the month of purchase and the remaining 60% in the following month.

The Caps are sold to retailers for $8.00 each (80% of total sales, all on account) and $15.00 each to the individual customers in the mall stores (20% of total sales, all in cash). Recent and forecasted sales in units are as follows:

The company is planning to open a new store in a shopping mall in July 2023 and expects to increase its sales by 10% every month from July to November 2023 and then decline by 10% during December and January 2023 and afterward the sales will be unchanged.

Opening the new store will cost the company $70,000 in advertising during July 2023. Furniture and Fixtures will cost $40,000 during July. The company is planning to buy sales equipment costing a total of $480,000 in May, payment in 4 instalments starting May and every 3 months thereafter. The rent for the new store will be $3,500 a month starting June 2023. A new Sales Manager will be hired at a monthly salary of $5,000 per month and she will start in June 2023. The additional costs of running the new store will be $4,000 per month when the store opens. To cover all the extra costs due to the new store, the owner decided to provide an interest-free loan of $30,000 to the company on June 1, 2023, with a condition that the company will repay the loan in full whenever there is sufficient cash balance available after the bank loan is repaid.

The company has found that only 60% of a month's sales are collected in the following month, and the remaining 40% is collected in the second month following the sales. Bad debts have been negligible.

The company's monthly operating expenses are given below:

Variable cost

Sales Commission (retail only) $1.00 per Cap sold

Fixed Costs 

All operating expenses are paid during the month in cash. The company pays a salary of $7,000 each month to the owner Peter Haul, payable on the 1^st week of next month. The company's balance sheet on March 31, 2023, is given below:

Required

Prepare a master budget for the 12 months ending March 31, 2024. Include the following detailed budgets:

1. A Sales Budget, by month and in total. 

• A Schedule of expected cash collections from sales, by month and in 
• A Merchandise Purchases budget in units and dollars. Show the budget by month and in 
• A Schedule of Expected Cash Disbursements for merchandise purchases, by month and in 

2. A Cash Show the budget by month. 

3. A Budgeted Income Statement for the year ending March 31

4. A Budgeted Balance Sheet as of March 31

5. Because sales have increased after the opening of the new store, do you think

that the company made a wise decision by opening the store. The owner could have invested the $30,000 interest-free Loan elsewhere earning an 8% interest annually. Explain your answer supported by numbers/calculations.      

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