Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 36

Prepare Budgeted Financial Statements

The following information is available for year 1 for Dancer Components:

Revenues (300,000 units)	$5,700,000
Manufacturing costs
Materials	$ 336,000
Variable cash costs	284,800
Fixed cash costs	655,200
Depreciation (fixed)	1,998,000
Marketing and administrative costs
Marketing (variable, cash)	844,800
Marketing depreciation	299,200
Administrative (fixed, cash)	1,018,400
Administrative depreciation	149,600
Total costs	$5,586,000
Operating profits	$ 114,000

All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 18 percent, but prices are expected to fall by 5 percent. Material costs per unit are expected to decrease by 8 percent. Other unit variable manufacturing costs are expected to decrease by 2 percent per unit. Fixed manufacturing costs are expected to increase by 5 percent.

Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Dancer operates on a cash basis.

Required

Prepare a budgeted income statement for year 2.

Step 1 of 9

Budgeted income statement refers to the financial statement which is used for comparing estimated revenues and expenses with actual performance occurred during the period. The company prepares the budgeted income statement for predicting the revenues and expenses during the period. the values on budgeted income statements are not much accurate because the budgeted income statements are prepared on the basis of predictions.