Question

As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y9, the following tentative trial balance as of December 31, 20Y8, is prepared by the Accounting Department of Regina Soap Co.:

Cash	$85,000
Accounts Receivable	125,600
Finished Goods	69,300
Work in Process	32,500
Materials	48,900
Prepaid Expenses	2,600
Plant and Equipment	325,000
Accumulated Depreciation—Plant and Equipment			$156,200
Accounts Payable			62,000
Common Stock, $10 par			180,000
Retained Earnings			290,700
	$688,900		$688,900

Factory output and sales for 20Y9 are expected to total 200,000 units of product, which are to be sold at $5.00 per unit. The quantities and costs of the inventories at December 31, 20Y9, are expected to remain unchanged from the balances at the beginning of the year.

Budget estimates of manufacturing costs and operating expenses for the year are summarized as follows:

	Estimated Costs and Expenses
	Fixed (Total for Year)		Variable (Per Unit Sold)
Cost of goods manufactured and sold:
Direct materials	_		$1.10
Direct labor	_		0.65
Factory overhead:
Depreciation of plant and equipment	$40,000		_
Other factory overhead	12,000		0.40
Selling expenses:
Sales salaries and commissions	46,000		0.45
Advertising	64,000		_
Miscellaneous selling expense	6,000		0.25
Administrative expenses:
Office and officers salaries	72,400		0.12
Supplies	5,000		0.10
Miscellaneous administrative expense	4,000		0.05

Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $30,000 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $0.15 per share are expected to be declared and paid in March, June, September, and December on 18,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $75,000 cash in May.

Required:

1. Prepare a budgeted income statement for 20Y9.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
			$
Cost of goods sold:
		$
Cost of goods sold
Gross profit			$
Operating expenses:
Selling expenses:
	$
Total selling expenses		$
Administrative expenses:
	$
Total administrative expenses
Total operating expenses
Income before income tax			$
			$

2. Prepare a budgeted balance sheet as of December 31, 20Y9.

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9
Assets
Current assets:
		$
Inventories:
	$
Total current assets			$
Property, plant, and equipment:
		$
Total property, plant, and equipment
Total assets			$
Liabilities
Current liabilities:
			$
Stockholders' Equity
		$
Total stockholders’ equity
Total liabilities and stockholders’ equity			$

Answer 1

Regina Soap Co.
Budgeted Income Statement
For the year Ending December 31, 20Y9
Sales [200,000 units × $5]		$1,000,000
Cost of good sold:
Direct Material [200,000 × $1.10]	$220,000
Direct labor [200,000 × $0.65]	$130,000
Factory overhead [$52000 + (200,000 × $0.40)]	$132,000	$482,000
Gross profit		$518,000
Operating Expenes
Selling Expenses:
Sales Salaries and Commission [$46000 + (200,000 × $0.45)]	$136,000
Advertising	$64,000
Miscellaneous selling expenses [$6000 + (200,000 × $0.25)]	$56,000
Total selling Expenses		$256,000
Administrative Expenses:
Office and Officers salaries [$72400 + (200,000 × $0.12)]	$96,400
Supplies expenses [$5000 + (200,000 × 0.10)]	$25,000
Miscellaneous administrative expenses [$4000 + (200,000 × $0.05)]	$14,000
Total administrative expenses		$135,400
Total operating expenses		$391,400
Income before tax		$126,600
Income tax expenses		($30,000)
Net Income		$96,600

________________________________________________________________________

Regina Soap Co.
Budgeted Balance Sheet
December. 31, 2017
Assets:
Cash	$135,800
Accounts Receivable	$125,600
Inventories:
Finished goods	$69,300
Work in process	$32,500
Materials	$48,900
Prepaid Expenses	$2,600
Total Current Assets		$414,700
Property, plant and equipment	$400,000
Less: Accumulated depreciation	($196,200)	$203,800
Total Assets		$618,500
Liabilities
Current liabilities:
Accounts payable		$62,000
Stockholders' equity
Common stock	$180,000
Retained earnings	$376,500
Total stockholders' equity		$556,500
Total liabilities and stockholders' equity		$618,500

__________________________________________________________________

Working note as follows:

Retained earnings
Beg. Bal.	$290,700
Add: Net Income	$96,600
Less: Dividend (18,000 × $0.15 × $4)	($10,800)
Ending balance	$376,500
Cash
Beg. Bal.	$85,000
Add: Cash flow from operations:
Net Income (from income statement)	$96,600
Depreciation (Non cash item)	$40,000
Less: Non operating outflow:
Dividend paid	($10,800)
Plant property purchased	($75,000)
Ending balance	$135,800

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