Dalley Inc. has the following information for its first year of operations: Revenues (200,000 units) $...

Dalley Inc. has the following information for its first year of operations:


Revenues (200,000 units)	$	2,900,000
Manufacturing costs:
Materials	$	168,000
Variable cash costs		142,400
Fixed cash costs		327,600
Depreciation (fixed)		999,000

Marketing (variable)		422,400
Marketing depreciation		149,600
Administrative (fixed)		509,200
Administrative depreciation		74,800
Total costs	$	2,793,000
Operating profits	$	107,000

All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 15%, but sales prices are expected to fall by 5%. Material costs per unit are expected to decrease by 6%. Other unit variable manufacturing costs are expected to decrease by 2% per unit. Fixed manufacturing costs (other than depreciation) are expected to increase by 5%.

Variable marketing costs per unit will remain constant. Administrative costs (other than depreciation) are expected to increase by 10%.

Assume there are no inventories. Dalley operates on a cash basis.

Required:

Prepare a budgeted income statement for year 2.

Expert Solution

*Income Statement for Dalley Inc.*
	*Budgeted for next year*			Current given in question
*Particulars*	*No. of units*	*Per Unit*	*Total*	No. of units	Per Unit	Total
Revenue	2,30,000	13.775	31,68,250	2,00,000	14.5	29,00,000
Manufacturing Costs :
Materials	2,30,000	0.7896	1,81,608	2,00,000	0.84	1,68,000
Variable Cash Costs	2,30,000	0.6978	1,60,485	2,00,000	0.712	1,42,400
Fixed Cash Costs			3,43,980			3,27,600
Depreciation (Fixed)			9,99,000			9,99,000
Marketing (Variable)	2,30,000	2.112	4,85,760	2,00,000	2.112	4,22,400
Marketing Depreciation			1,49,600			1,49,600
Administrative (Fixed)			5,60,120			5,09,200
Administrative Depreciation			74,800			74,800
Total Costs			29,55,353			27,93,000
Operating Profits			2,12,897			1,07,000

Note : Current given income statement has been used above for calculation purposes.
Example : Materials cost in current year per unit = 0.84
Hence Material costs in budgeted year = 0.8494% = 0.7896 (as they are expected to decrease by 6%)*

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