Question

Budgeted Income Statement
Pendleton Company, a merchandising company, is developing its master budget for 2015. The income statement for 2014 is as follows:

Pendleton Company Income Statement For Year Ending December 31, 2014
Gross sales	$1,500,000
Less: Estimated uncollectible accounts	(30,000)
Net sales	1,470,000
Cost of goods sold	(825,000)
Gross profit	645,000
Operating expenses (including $25,000 depreciation)	(375,000)
Net income	$270,000

The following are management’s goals and forecasts for 2015:

1.	Selling prices will increase by 6 percent, and sales volume will increase by 4 percent.
2.	The cost of merchandise will increase by 3 percent.
3.	All operating expenses are fixed and are paid in the month incurred. Price increases for operating expenses will be 10 percent. The company uses straight-line depreciation.
4.	The estimated uncollectibles are 2 percent of budgeted sales.

Required
Prepare a budgeted functional income statement for 2015.

Do not use negative signs with any of your answers.

Pendleton Company Budgeted Income Statement For the Year Ending December 31, 2015
Sales	$Answer
Less: Estimated uncollectible accounts	Answer
Net sales	Answer
Cost of goods sold	Answer
Gross profit	Answer
Operating expenses	Answer
Net income	$Answer

Answer 1

1) Sales in 2015 = Sales in 2014*(1+increase in sales price)*(1+increase in sales volume)

= $1,500,000*1.06*1.04 = $1,653,600

2) Estimated uncollectible accounts = Sales in 2015*2%

= $1,653,600*2% = $33,072

3) Cost of goods sold in 2015 = COGS in 2014*(1+increase in sales volume)*(1+increase in cost of merchandise)

= $825,000*1.04*1.03 = $883,740

4) Operating expenses in 2014 except depreciation = Operating Expenses - Depreciation

= $375,000 - $25,000 = $350,000

Depreciation in 2015 = Depreciation in 2014 (because ompany uses straight line depreciation)

Depreciation in 2015 = $25,000

Operating expense except depreciation in 2015 = $350,000*1.10 = $385,000

Operating Expenses (including depreciation) in 2015 = $385,000+$25,000 = $410,000

Pendleton Company Budgeted Income Statement For the Year Ending December 31, 2015
Sales	$1,653,600
Less: Estimated uncollectible accounts	($33,072)
Net sales	$1,620,528
Cost of goods sold	($883,740)
Gross profit	$736,788
Operating expenses	($410,000)
Net income	$326,788