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 (19,500 units)	$	1,755,000
Manufacturing costs
Materials	$	313,000
Variable cash costs		427,000
Fixed cash costs		171,000
Depreciation (fixed)		211,000
Marketing and administrative costs
Marketing (variable, cash)		220,000
Marketing depreciation		53,000
Administrative (fixed, cash)		212,000
Administrative depreciation	$	19,000
Total costs	$	1,626,000
Operating profits	$	129,000

All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $15,250 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $21,700. Sales volume and prices are expected to increase by 12 percent and 6 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 10 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 8 percent. Inventories are kept at zero. Gulf States operates on a cash basis.

Required:

Prepare a budgeted income statement for year 2. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.)

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

Sales revenues (19,500 units)	$	1,755,000
Manufacturing costs
Materials	$	313,000
Variable cash costs		427,000
Fixed cash costs		171,000
Depreciation (fixed)		211,000
Marketing and administrative costs
Marketing (variable, cash)		220,000
Marketing depreciation		53,000
Administrative (fixed, cash)		212,000
Administrative depreciation	$	19,000
Total costs	$	1,626,000
Operating profits	$	129,000

All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $15,250 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $21,700. Sales volume and prices are expected to increase by 12 percent and 6 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 10 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 8 percent. Inventories are kept at zero. Gulf States operates on a cash basis.

Prepare a budgeted income statement for year 2. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.)

Answer 1

Gulf States Manufacturing
Budgeted Income Statement of Year 2
Particulars	Calculations	Amount
Revenues :
Sales	21840 units * $95.40	$ 2,083,536.00
	(WN: 1 & 2)
(A)    Total Revenues		$ 2,083,536.00
Expenses:
Manufacturing Costs:
Materials	21840 units * $17.66 (WN 3)	$      385,616.00
Variable Cash Costs	21840 units * $21.46 (WN 4)	$      468,675.20
Fixed Cash Costs	$171000 * 0.93	$      159,030.00
Depreciation	$21100-$15250+$21700	$        27,550.00
Marketing & Administrative Costs
Marketing Variable Cash Costs	$220000/19500units*21840 units	$      246,400.00
Marketing Depreciation	Fixed	$        19,000.00
Administrative Fixed Cash Costs	$212000 * 1.08	$      228,960.00
Administrative Depreciation	Fixed	$        19,000.00
(B)     Total Costs		$ 1,554,231.20
Operating Profits	(A)-(B)	$      529,304.80

Working Notes
1. Sales Price
Selling Price Per unit of year 1	$1755000/19500 units	$ 90.00
Selling Price Per unit of year 2	= $90*1.06=	$ 95.40
2. Sales Volume
Selling Volumes of year 2	=19500 units * 1.12=	21840	units
3. Materials Cost
Material Cost per unit of year 1	=$313000/19500=	$ 16.05
Material Cost per unit of year 2	=$16.05 * 1.10=	$ 17.66
4. Variable Cash Costs
Variable Cost per unit of year 1	=$427000/19500=	$ 21.90
Variable Cost per unit of year 2	=$21.90 * 0.98	$ 21.46

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