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

Exercise 38

Prepare Budgeted Financial Statements

Cameron Parts has the following data from year 1 operations, which are to be used for developing year 2 budget estimates:

Revenues (12,500 units)	$1,119,000
Manufacturing costs
Materials	$199,500
Variable cash costs	271,350
Fixed cash costs	108,000
Depreciation (fixed)	133,500
Marketing and administrative costs
Marketing (variable, cash)	142,500
Marketing depreciation	33,900
Administrative (fixed, cash)	135,165
Administrative depreciation	2,600
Total costs	$1,036,515
Operating profits	$ 82,485

All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $14,550 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $21,000. Sales volume and prices are expected to increase by 12 percent and 6 percent, respectively. On a per unit basis, expectations are that materials costs will increase by 10 percent and variable manufacturing costs will decrease by 4 percent. Fixed manufacturing costs are expected to decrease by 7 percent.

Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 8 percent. Inventories are kept at zero. Cameron operates on a cash basis.

Required

Prepare a budgeted income statement for year 2.