Question

The following information is available for year 1 for Pepper Products: Sales revenue (300,000 units) $ 8,100,000 Manufacturing costs Materials $ 478,000 Variable cash costs 406,000 Fixed cash costs 935,000 Depreciation (fixed) 2,851,000 Marketing and administrative costs Marketing (variable, cash) 1,205,000 Marketing depreciation 428,000 Administrative (fixed, cash) 1,456,000 Administrative depreciation 213,000 Total costs $ 7,972,000 Operating profits $ 128,000 All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to fall by 6 percent, but prices are expected to rise by 16 percent. Material costs per unit are expected to increase by 9 percent. Other unit variable manufacturing costs are expected to decrease by 7 percent per unit. Fixed cash costs are expected to increase by 5 percent. Variable marketing costs will change with unit volume. Administrative cash costs are expected to increase by 2 percent. Inventories are kept at zero. Pepper Products operates on a cash basis. Required: Prepare a budgeted income statement for year 2. (Do not round intermediate calculations.)

Answer 1

	Calculation Of Expected Variable Cost Per Unit For Year 2
		Cost For Year 1 for 30000 Units	Unit Cost For Year 1	Increase /Decrease %	Increase /Decrease $	Unit Cost For Year2
		a	b=a/30000 units	c	d=b*c	e=d+b
	Sales Revenue	8100000	270	16%	43.2	313.20
	Material	478000	15.93	9%	1.43	17.37
	Variable Cash Cost	406000	13.53	-7%	-0.95	12.59
	Marketing and administrative costs	1205000	40.17	No Change		40.17
	New Sales Volume =30000 -6% =28200 units
	Budget for year 2
a	Sale Revenue (28200*313.2)	8832240
b	Variable Cost
	Material (28200*17.37)	489758.8
	Variable Cash Cost (28200*12.59)	354925.2
	Marketing and administrative costs	1132794
	(28200*40.17)
	Total	1977478
c	Fixed Cost
	Fixed Cash Cost	981750
	Depreciation (fixed	2851000
	Marketing depreciation	428000
	Administrative (fixed, cash)	1485120
	Administrative depreciation	213000
	Total	5958870
d	operating profit (a-b-c)	895892