Question

Panther Corporation appeared to be experiencing a good year. Sales in the first quarter were one-third ahead of last year, and the sales department predicted that this rate would continue throughout the entire year. The controller asked Janet Nomura, a summer accounting intern, to prepare a draft forecast for the year and to analyze the differences from last year's results. She based the forecast on actual results obtained in the first quarter plus the expected costs of production to be completed in the remainder of the year. She worked with various department heads (production, sales, and so on) to get the necessary information. The results of these efforts follow:

  

PANTHER CORPORATION
Expected Account Balances for December 31, Year 2
Cash $ 6,500
Accounts receivable 337,000
Inventory (January 1, Year 2) 240,000
Plant and equipment 605,000
Accumulated depreciation $ 181,000
Accounts payable 197,000
Notes payable (due within one year) 217,000
Accrued payables 110,000
Common stock 450,000
Retained earnings 468,000
Sales revenue 2,570,000
Other income 70,000
Manufacturing costs
Materials 850,000
Direct labor 900,000
Variable overhead 545,000
Depreciation 37,000
Other fixed overhead 48,000
Marketing
Commissions 140,000
Salaries 81,000
Promotion and advertising 284,000
Administrative
Salaries 81,000
Travel 18,500
Office costs 53,000
Income taxes —
Dividends 37,000
$ 4,263,000 $ 4,263,000

  
Adjustments for the change in inventory and for income taxes have not been made. The scheduled production for this year is 350,000 units, and planned sales volume is 300,000 units. Sales and production volume was 200,000 units last year. The company uses a full-absorption costing and FIFO inventory system and is subject to a 40 percent income tax rate. The actual income statement for last year follows:

  

PANTHER CORPORATION
Statement of Income and Retained Earnings
For the Budget Year Ended December 31, Year 1
Revenues
Sales revenue $ 1,700,000
Other income 55,000 $ 1,755,000
Expenses
Cost of goods sold
Materials $ 420,000
Direct labor 500,000
Variable overhead 215,000
Fixed overhead 65,000
$ 1,200,000
Beginning inventory 240,000
$ 1,440,000
Ending inventory 240,000 $ 1,200,000
Selling
Salaries $ 71,000
Commissions 77,000
Promotion and advertising 143,000 291,000
General and administrative
Salaries $ 73,000
Travel 17,000
Office costs 49,000 139,000
Income taxes 50,000 1,680,000
Operating profit 75,000
Beginning retained earnings 430,000
Subtotal $ 505,000
Less dividends 37,000
Ending retained earnings $ 468,000

Required:

Prepared a budgeted income statement and balance sheet. (Round "Cost per unit" to 2 decimal places. Do not round any other intermediate calculations.)

(Enter all the values as positive values.)

  

Answer 1

The budgeted income statement is prepared as below:

Panther Corporation
Budgeted Income Statement
(in thousands)
	Actual for the Year Ended December 31, (Year 1)		Actual for the Year Ended December 31, (Year 2)
Revenue:
Sales Revenue	17,000,00		2,570,000
Other Income	55,000		70,000
Total Revenue		1,755,000		2,640,000
Expenses:
Cost of Goods Manufactured and Sold:
Materials	420,000		850,000
Direct Labor	500,000		900,000
Variable Overhead	215,000		545,000
Fixed Overhead
Depreciation and Other	65,000		85,000
	1,200,000		2,380,000
Beginning Inventory	240,000		240,000
	1,440,000		2,620,000
Ending Inventory	240,000	1,200,000	557,600	2,062,400
Marketing:
Salaries	71,000		81,000
Commissions	77,000		140,000
Promotion and Advertising	143,000	291,000	284,000	505,000
Administrative:
Salaries	73,000		81,000
Travel	17,000		18,500
Office Costs	49,000	139,000	53,000	152,500
Income Taxes		50,000		-31,960
Total Expenses		1,680,000		2,687,940
Operating Profit (Loss)		$75,000		-$47,940

______

The budgeted balance sheet is given as below:

Panther Corporation
Budgeted Balance Sheet
(in thousands)
	Budgeted December 31, Year 2
Current Assets
Cash	6,500
Accounts Receivable	337,000
Inventory	557,600
Income Taxes Receivable	31,960
Total Current Assets		933,060
Plant and Equipment	605,000
Less Accumulated Depreciation	181,000	424,000
Total Assets		1,357,060
Current Liabilities
Accounts Payable	197,000
Accrued Payable	110,000
Notes Payable	217,000
Total Current Liabilities		524,000
Shareholder's Equity
Common Stock	450,000
Retained Earnings (468,000 - 47,940 - 37,000)	383,060
Total Shareholder's Equity		833,060
Total Liabilities and Shareholder's Equity		$1,357,060

______

Notes:

1) The cost of ending inventory (Year 2) is calculated as below:

Cost Per Unit = Cost of Goods Sold, Year 1/Quantity Sold, Year 1 = 1,200,000/200,000 = $6.00 per unit

Units in Ending Inventory = Opening Inventory Cost/Cost Per Unit + Increase in Inventory = 192,000/6 + (350,000 - 300,000) = 82,000 units

Now, we can calculate cost of ending inventory as below:

Cost of Ending Inventory = Total Manufacturing Costs, Year 2/Total Planned Production Year 2*Units in Ending Inventory = 2,380,000/350,000*82,000 = $557,600

____

2) The value of income taxes for Year 2 is determined as follows:

Income Taxes Receivable = (Total Revenue - Total Expenses)*Tax Rate = (2,640,000 - 2,062,400 - 505,000 - 152,500)*40% = -$31,960