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Budgeted Income Statement with CVP Madison Booksellers is planning a budget for 2018. The estimate of...

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

Solutions

Expert Solution

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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