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Budgeted Income Statement, Balance Sheet and Cash Budget

Please see the attached file.

Results of operation for the 4th quarter 07:

Sale of product 400,000
Less variable cost of goods sold 225,000
Contribution margin 175,000
Less fixed production costs 65,000
Less fixed selling & admin exp. 27,000 92,000
Income before taxes 83,000
Less taxes on income 33,000
Net Income 49,800

The company uses the variable costing method. So only variable costs are included in the cost of goods sold. Fixed costs are charged to expenses in the period incurred.

Company's balance sheet as of the end of the 4th quarter 07:

Assets
Cash 25,000
Accounts receivable 115,000
Total current assets 140,000
Fixtures & equip. 125,000
Less accumulated dep. 75,000 50,000
Total assets 190,000

Liabilities and owners equity
Accounts payable 19,000
Retained earnings 96,000
Common stock 75,000
Total liabilities and owners equity 190,000

- Sales and variable costs of sales are expected to increase by 5% in the next quarter.
- All sales are on credit with 50% collected in the quarter of sale and 50% collected in the following quarter.
- Variable cost of sales consists of 40% materials, 40% direct labor, and 20% variable overhead. Materials are purchased on credit and 60% are paid for in the quarter of purchase and the remaining amount is paid for in the quarter after purchase. There is no inventory. Also, direct labor and variable overhead are paid in the quarter the expenses are incurred.
- Fixed production costs (other than $2,000 of depreciation) are expected to increase by 2%. Fixed production costs requiring payment are paid in the quarter they are incurred.
- The tax rate is expected to be 40%. All taxes are paid in the quarter they are incurred.
- No purchases of fixtures or equipment are expected in the first quarter of 08.

Questions:
1. Prepare a budgeted income statement for the first quarter of 08
2. Prepare a budgeted statement of cash receipts and disbursements for the first quarter of 08.
3. Prepare a budgeted balance sheet as of the end of the first quarter of 08.

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Solution Preview

Please see the attached file.

Results of operation for the 4th quarter 07:

Sale of product 400,000
Less variable cost of goods sold 225,000
Contribution margin 175,000
Less fixed production costs 65,000
Less fixed selling & admin exp. 27,000 92,000
Income before taxes 83,000
Less taxes on income 33,000
Net Income 49,800

The company uses the variable costing method. So only variable costs are included in the cost of goods sold. Fixed costs are charged to expenses in the period incurred.

Company's balance sheet as of the end of the 4th quarter 07:

Assets
Cash 25,000
Accounts receivable 115,000
Total current assets 140,000
Fixtures & equip. 125,000
Less accumulated dep. 75,000 50,000
Total assets 190,000

Liabilities and owners equity
Accounts payable 19,000
Retained earnings 96,000
Common stock 75,000
Total liabilities and owners equity 190,000

- Sales and variable costs of sales are expected to ...

Solution Summary

The solution explains how to calculate the budgeted income statement, balance sheet and the cash budget

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