In: Finance
Budgeted Income Statement with CVP
Madison Booksellers is planning a budget for 2018. The estimate of
sales revenue is $3,200,000 and of cost of goods sold is 70 percent
of sales revenue. Depreciation on the office building and fixtures
is budgeted at $120,000. Salaries and wages are budgeted at
$200,000. Advertising has been budgeted at $180,000 and utilities
should amount to $140,000. Income tax is estimated at 40 percent of
operating income.
Required
a. Prepare a budgeted income statement for 2018.
Use a negative sign only to indicate a net loss for income. Otherwise, do not use negative sings with your answers.
Madison Booksellers | |||
---|---|---|---|
Budgeted Income Statement | |||
For the Year Ending Decemeber 31, 2018 | |||
Sales | Answer | ||
Cost of goods sold | Answer | ||
Gross margin | Answer | ||
Sales and administrative expenses | |||
Depreciation | Answer | ||
Wages and salaries | Answer | ||
Advertising | Answer | ||
Utilities | Answer | Answer | |
Net income before taxes | Answer | ||
Income taxes | Answer | ||
Net Income (loss) | Answer |
b. Assuming management desired an after-tax income of $210,000 determine the necessary sales volume.
$Answer
Solution a) The Income statement for the year 2018 is shown as below:
Particulars | 2018 | |
Sales | $ 32,00,000 | |
Cost of goods sold (70%*Sales) | $ 22,40,000 | |
Gross margin | $ 9,60,000 | |
Sales and administrative expenses | ||
Depreciation | $ 1,20,000 | |
Wages and salaries | $ 2,00,000 | |
Advertising | $ 1,80,000 | |
Utilities | $ 1,40,000 | $ 6,40,000 |
Net income before taxes (PBT) | $ 3,20,000 | |
Income taxes (Tax rate*PBT) | $ 1,28,000 | |
Net Income (loss) | $ 1,92,000 |
PBT = Gross margin - Sales and administrative expenses = 9,60,000 - 6,40,000 = 3,20,000
Solution b) Sales and administrative expenses = 640,000
The company needs to recover first this expense. After this expense, the company will make required profit of after-tax profit of $210,000
Net Income = (Sales - COGS - Sales and administrative expenses)*(1 -tax%)
210,000 = (Sales - COGS - 640,000)*(1 -40%)
210,000/60% = Sales - COGS - 640,000
350000 = Sales - COGS - 640,000
Sales - COGS = 640,000 + 350,000 = 990,000
Sales - 70%*Sales = 990,000
Sales*(1 -70%) = 990,000
Sales = 990000/30% = 3,300,000
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