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	$118,900
Accounts Receivable	217,600
Finished Goods	45,700
Work in Process	30,500
Materials	50,000
Prepaid Expenses	3,700
Plant and Equipment	542,200
Accumulated Depreciation—Plant and Equipment			$233,100
Accounts Payable			204,900
Common Stock, $10 par			250,000
Retained Earnings			320,600
	$1,008,600		$1,008,600

Factory output and sales for 20Y9 are expected to total 27,000 units of product, which are to be sold at $110 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	_		$28
Direct labor	_		8.5
Factory overhead:
Depreciation of plant and equipment	$27,000		_
Other factory overhead	8,400		5
Selling expenses:
Sales salaries and commissions	96,900		14
Advertising	81,000		_
Miscellaneous selling expense	7,000		2
Administrative expenses:
Office and officers salaries	63,700		7
Supplies	3,200		1
Miscellaneous administrative expense	1,700		1.5

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 $261,600 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 25,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $146,000 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			$

Feedback

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

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9
Assets
Current assets:
Cash		$
Accounts receivable
Inventories:
Finished goods	$
Work in process
Materials
Prepaid expenses
Total current assets			$
Property, plant, and equipment:
Plant and equipment		$
Accumulated depreciation
Total property, plant, and equipment
Total assets			$
Liabilities
Current liabilities:
Accounts payable			$
Stockholders' Equity
Common stock		$
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity			$

Answer 1

REGINA SOAP COMPANY
Budgeted Income Statement
for the year ending December 31, 20Y9
Sales			2970000
Cost of goods sold:
Direct material		756000
Diret labor		229500
Factory overhead		170400
Cost of goods sold			1155900
Gross Profit			1814100
Operating Expenses
Selling Expenses:
Sales salaries and commissions	474900
Advertising	81000
Miscellaneous selling expenses	61000
Total selling expeses		616900
Administrative expenses
Office and officers salaries	252700
Supplies	30200
Miscellaneous admn.expenses	42200
Total administrative expesnses		325100
Total Operating Expenses			942000
Income before taxes			872100
Income Taxes			261600
Net income			610500

Working:

1. Sales Revenue
Production and sales units	27000
Unit sellinf price	110
Sales Revenue	2970000
2. Expenses
		Variable		Total
	Fixed	Per unit	Total
Direct materials	0	28	756000	756000
Direct labor	0	8.5	229500	229500
Factory Overhead:			0	0
Depreciation of plant and equipment	27000		0	27000
Other factory overhead	8400	5	135000	143400
Cost of goods sold	35400		1120500	1155900
Selling Expeses:
Sales salaries and commissions	96900	14	378000	474900
Advertising	81000		0	81000
Miscellaneous selling expenses	7000	2	54000	61000
Total selling expeses	184900		432000	616900
Administrative expenses
Office and officers salaries	63700	7	189000	252700
Supplies	3200	1	27000	30200
Miscellaneous admn.expenses	1700	1.5	40500	42200
Total administrative expesnses	68600		256500	325100

REGINA SOAP COMPANY
Budgeted Balance Sheet
as at December 31, 20Y9
Assets
Current Assets
Cash *		510400
Accounts Receivable		217600
Inventories **
Finished goods	45700
Work in process	30500
Raw material	50000	126200
Prepaid expenses		3700
Total current assets			857900
Property, pnat and equipment
Plant and equipment		688200
Accumulated depreciation		260100
Total property,plant and equipment			428100
Total Assets			1286000
Liabilities
Current liabilities
Accounts Payable			204900
Stockholders' Equity
Common stock		250000
Retained Earnings ***		831100
Total Stockholders' equity			1081100
Total liabilities and stockholders' equity			1286000
Cash *
Net income		610500
Add: Depreciation		27000
		637500
Less: Dividends (25,000 x 4)	100000
Equipment purchases	146000	246000
Net cash flow during the year		391500
Cash balance as at January 1		118900
Cash balane as at December 31		510400
Inventories **
As the production and sales are equal at 27,000 units, there is no adition
to inventories.
Retained Earnings: ***
Balance as at January 1	320600
Add: Net income for the year	610500
Less: Dividends	100000
Balance as at December 31	831100