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Budget for Kurian Industries

P9-6A Kurian Industries' balance sheet at December 31, 2005, is presented below.
Additional information accumulated for the budgeting process is as follows.
Budgeted data for the year 2006 include the following.

Prepare purchases and income statement budgets for a merchandiser.
(SO 6)
Balance Sheet
December 31, 2005
Current assets
Cash $ 7,500
Accounts receivable 82,500
Finished goods inventory (2,000 units) 30,000
Total current assets 120,000
Property, plant, and equipment
Equipment $40,000
Less: Accumulated depreciation 10,000 30,000
Total assets $150,000
Liabilities and Stockholders' Equity
Notes payable $ 25,000
Accounts payable 45,000
Total liabilities 70,000
Stockholders' equity
Common stock $50,000
Retained earnings 30,000
Total stockholders' equity 80,000
Total liabilities and stockholders' equity $150,000
4th Qtr. 2006
of 2006 Total
Sales budget (8,000 units at $30) $70,000 $240,000
Direct materials used 17,000 69,400
Direct labor 8,500 38,600
Manufacturing overhead applied 10,000 54,000
Selling and administrative expenses 18,000 76,000
(a) Purchases: July $247,500
August $277,500
(b) Net income: July $62,650
August $73,500
Prepare budgeted income
statement and balance sheet.
(SO 3, 4, 5)
To meet sales requirements and to have 3,000 units of finished goods on hand at December
31, 2006, the production budget shows 9,000 required units of output. The total
unit cost of production is expected to be $18. Kurian Industries uses the first-in, first-out
(FIFO) inventory costing method. Selling and administrative expenses include $4,000 for
depreciation on equipment. Interest expense is expected to be $3,500 for the year. Income
taxes are expected to be 30% of income before income taxes.
All sales and purchases are on account. It is expected that 60% of quarterly sales are
collected in cash within the quarter and the remainder is collected in the following quarter.
Direct materials purchased from suppliers are paid 50% in the quarter incurred and
the remainder in the following quarter. Purchases in the fourth quarter were the same as
the materials used. In 2006, the company expects to purchase additional equipment costing
$14,000. It expects to pay $8,000 on notes payable plus all interest due and payable
to December 31 (included in interest expense $3,500, above). Accounts payable at December
31, 2006, includes amounts due suppliers (see above) plus other accounts payable
of $10,700. In 2006, the company expects to declare and pay a $5,000 cash dividend. Unpaid
income taxes at December 31 will be $5,000. The company's cash budget shows an
expected cash balance of $9,950 at December 31, 2006.

Prepare a budgeted income statement for 2006 and a budgeted balance sheet at December
31, 2006. In preparing the income statement, you will need to compute cost of goods
manufactured (direct materials  direct labor  manufacturing overhead) and finished
goods inventory (December 31, 2006).
384 CHAPTER 9 Budgetary Planning
Net income $15,750
Total assets $131,950
Problems: Set