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Budgeting of Operating Expenses, COGS and Net Income

Use the following to answer questions 47-20.

Harlow Promotions, Inc. sells T-shirts for concerts. The company has developed the following budget for the coming year based on a sales forecast of 80,000 T-shirts:
Sales $1,600,000
Cost of Goods Sold 960,000
Gross Profit $ 640,000
Operating Expenses ($100,000 is fixed) 420,000
Operating Income 220,000
Income Taxes (30% of operating income) 66,000
Net Income $ 154,000

Cost of goods sold and variable operating expenses vary directly with sales, and the income tax rate is 30% at all levels of operating income.
If the concert season is slow due to poor weather, Harlow estimates that sales could fall to as low as 60,000 T-shirts.

47. Refer to the information above. In a flexible budget for sales of 60,000 T-shirts, how much would Harlow budget for operating expenses?
a. $240,000.
b. $340,000.
c. $315,000.
d. $75,000.

48. Refer to the information above. What unit cost did Harlow use in budgeting the cost of goods sold for the year?
a. $4.
b. $12.
c. $20.
d. Some other amount.

49. Refer to the information above. Assume Harlow actually achieves the 60,000 unit sales level, and that net income actually earned at this level was $100,000. A performance report would indicate that net income was:
a. $2,000 over budget.
b. $54,000 under budget.
c. $120,000 under budget.
d. At the budgeted level.

50. Which of the following is true?
a. Budgeted balance sheets are not dependent upon budgeted income statements
b. Budgeted income statements include depreciation expenses
c. Cash budgets include depreciation expenses
d. A production schedule shows the cost of the direct material to be purchased

Solution Preview

Problem 47
Answer: B
Operating expenses are made up of fixed and variable expenses. The fixed portion is $100,000 (given in the problem) while the variable portion = ...

Solution Summary

This solution looks at budgeting: operating expenses, cost of goods and net income.