Question

1. Prepare a sales budget for January through May. The selling price per unit is $40.00.

December of the previous year-40,000

January-90,000

February-80,000

March-70,000

April-40,000

2. Prepare a purchases budget for January through March, and the first quarter in total. Assume that the company only sells one product that can be purchased at $15.00 per unit. The market for this product is very competitive and customers highly value service such as quality and on time delivery of the product. Also assume that currently it is company policy that ending inventory should equal 5% of next month’s projected sales.

3. Prepare a cash budget for January through March and for the first quarter in total. The company maintains a minimum cash balance of $50,000.00, and this was the balance in the cash account on January 1. Past experience shows that 30% of sales are collected in the month of the sale, and 70% in the month following the sale. Labor cost is $15 per unit. Other expenses include $37,000 per month for rent, $4,000 for advertising, and $6,000 per month for depreciation. All costs are paid in the current month except inventory purchases, which are paid in the month following purchase (i.e. January purchases are paid in February). On January 1st there was an accounts receivable balance of $60,000 and an outstanding accounts payable balance of $100,000. The company has an open line of credit with a bank and can borrow at an annual rate of 12%. For simplification assume that all loans are made at the beginning of the month when borrowing is needed and repayments are made at the end of a month when there is enough cash to make the payment. Also, interest is only paid at the time when a repayment is made. Additionally, all loans and repayments (not the interest portion) can only be made in increments of $1000 and the company would like to pay its debts, or a portion thereof, as soon as it has enough cash to do so.

4. Prepare the Budgeted Income Statement based on the information given above.

I did questions 1-3, I need help with 4. Thanks!

Answer 1

Budgeted Income Statement
	January	February	March	Total quarter end
Units sold	90,000	80,000	70,000	240,000
Sales revenue (Units sold *40)	3,600,000	3,200,000	2,800,000	9,600,000
Less: Cost of Goods sold (Units sold *15)	1,350,000	1,200,000	1,050,000	3,600,000
Gross Profit	2,250,000	2,000,000	1,750,000	6,000,000
Less: Operating expense
Wages expense or Labor cost (Units sold*15)	1,350,000	1,200,000	1,050,000	3,600,000
Rent expense	37,000	37,000	37,000	111,000
Advertising expense	4,000	4,000	4,000	12,000
Depreciation Expense	6,000	6,000	6,000	18,000
Total operating expense	1,397,000	1,247,000	1,097,000	3,741,000
Operating Profit	853,000	753,000	653,000	2,259,000
Less: Interest expense (if any)	Put here	Put here	Put here	Total interest
Net income	#VALUE!	#VALUE!	#VALUE!	#VALUE!
Net income = Operating Profit - Interest expense
Dear student, Interest expense Put in Above Box and for calculation of net income, Interest expense deducted from operating income.
You can find interest expense from Cash Budget, So update Interest expense in above Income statement or Comment me interest expense So I can update My solution.

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