Question

Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates:

Sales revenues (17,000 units)	$	1,530,000
Manufacturing costs
Materials	$	273,000
Variable cash costs		373,000
Fixed cash costs		150,000
Depreciation (fixed)		184,000
Marketing and administrative costs
Marketing (variable, cash)		196,000
Marketing depreciation		48,000
Administrative (fixed, cash)		192,000
Administrative depreciation	$	17,000
Total costs	$	1,433,000
Operating profits	$	97,000

All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $16,050 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $22,500. Sales volume and prices are expected to increase by 11 percent and 7 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 9 percent and variable manufacturing costs will decrease by 2 percent. Fixed cash manufacturing costs are expected to decrease by 7 percent.

Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 7 percent. Inventories are kept at zero. Gulf States operates on a cash basis.

1. Required information

Required: Prepare a budgeted income statement for year 2. (Do not round intermediate calculations.)

2. Required information

Required: Estimate the cash from operations expected in year 2. (Do not round intermediate calculations.)

Answer 1