Question

Budgeted Income Statement and Balance Sheet

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
Sales			$
Cost of goods sold:
Direct materials		$
Direct labor
Factory overhead
Cost of goods sold
Gross profit			$
Operating expenses:
Selling expenses:
Sales salaries and commissions	$
Advertising
Miscellaneous selling expense
Total selling expenses		$
Administrative expenses:
Office and officers salaries	$
Supplies
Miscellaneous administrative expense
Total administrative expenses
Total operating expenses
Income before income tax			$
Income tax expense
Net income			$

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Use information from the expected sales, cost of goods manufactured and sold, and selling and administrative expenses.

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

1.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
Sales			1000000
Cost of goods sold:
Direct materials		220000
Direct labor		130000
Factory overheads		132000
Cost of goods sold			482000
Gross profit			518000
Operating expenses:
Selling expenses:
Sales salaries and commissions	136000
Advertising	64000
Miscellaneous selling expense	56000
Total selling expenses		256000
Administrative expenses:
Office and officers salaries	96400
Supplies	25000
Miscellaneous administrative expenses	14000
Total administrative expenses		135400
Total operating expenses			391400
Income before income tax			126600
Income tax			30000
Net income			96600

Workings:

Sales (200000 x $5)	1000000
Direct materials (200000 x $1.10)	220000
Direct labor (200000 x $0.65)	130000
Factory overheads (200000 x $0.40) + $40000 + $12000	132000
Sales salaries and commissions (200000 x $0.45)+$46000	136000
Miscellaneous selling expense (200000 x $0.25)+$6000	56000
Office and officers salaries (200000 x $0.12)+$72400	96400
Supplies (200000 x $0.10) + $5000	25000
Miscellaneous administrative expense (200000 x $0.05)+$4000	14000

2.

Regina Soap Co.
Budgeted Balance Sheet
December 31, 20Y9
Assets
Current assets:
Cash		135800
Accounts receivable		125600
Inventories:
Finished goods	69300
Work in process	32500
Materials	48900	150700
Prepaid expenses		2600
Total current assets			414700
Property, plant, and equipment:
Plant and Equipment		400000
Accumulated depreciation-Plant and Equipment		-196200
Total property, plant, and equipment			203800
Total assets			618500
Liabilities
Current liabilities:
Accounts payable			62000
Stockholders' Equity
Common stock, $10 par		180000
Retained earnings		376500
Total stockholders' equity			556500
Total liabilities and stockholders' equity			618500

Workings:

Cash:
Beginning balance	85000
Collections from customers	1000000
Payment for expenses
Cost of goods sold (excluding depreciation)	-442000
Operating expenses	-391400
Income taxes	-30000
Dividends	-10800
Purchase of equipment	-75000
Ending balance	135800

Plant and equipment = $325000 + $75000 = $400000

Accumulated depreciation-Plant and Equipment = $156200 + $40000 = $196200

Retained earnings:
Beginning balance	290700
Net income	96600
	387300
Less dividends	10800
($180000/$10 x $0.15 x 4)
Ending balance	376500