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

Exercise 45

Comprehensive Budget Plan

Panther Corporation appeared to be experiencing a good year. Sales in the first quarter were one-third ahead of last year, and the sales department predicted that this rate would continue throughout the entire year. The controller asked Janet Nomura, a summer accounting intern, to prepare a draft forecast for the year and to analyze the differences from last year’s results. She based the forecast on actual results obtained in the first quarter plus the expected costs of production to be completed in the remainder of the year. She worked with various department heads (production, sales, and so on) to get the necessary information. The results of these efforts follow:

PANTHER CORPORATION Expected Account Balances for December 31, Year 2
Cash	$ 4,800
Accounts receivable	320,000
Inventory (January 1, Year 2)	192,000
Plant and equipment	520,000
Accumulated depreciation		$ 164,000
Accounts payable		180,000
Notes payable (due within one year)		200,000
Accrued payables		93,000
Common stock		280,000
Retained earnings		432,800
Sales		2,400,000
Other income		36,000
Manufacturing costs
Materials	852,000
Direct labor	872,000
Variable overhead	520,000
Depreciation	20,000
Other fixed overhead	31,000
Marketing
Commissions	80,000
Salaries	64,000
Promotion and advertising	180,000
Administrative
Salaries	64,000
Travel	10,000
Office costs	36,000
Income taxes	—
Dividends	20,000
	$3,785,800	$3,785,800

Adjustments for the change in inventory and for income taxes have not been made. The scheduled production for this year is 450,000 units, and planned sales volume is 400,000 units. Sales and production volume was 300,000 units last year. The company uses a full-absorption costing and FIFO inventory system and is subject to a 40 percent income tax rate. The actual income statement for last year follows:

PANTHER CORPORATION Statement of Income and Retained Earnings For the Budget Year Ended December 31, Year 1
Revenues
Sales		$1,800,000
Other income		60,000	$1,860,000
Expenses
Cost of goods sold
Materials	$ 528,000
Direct labor	540,000
Variable overhead	324,000
Fixed overhead	48,000
	$1,440,000
Beginning inventory	192,000
	$1,632,000
Ending inventory	192,000	$1,440,000
Selling
Salaries	$ 54,000
Commissions	60,000
Promotion and advertising	126,000	240,000
General and administrative.
Salaries	$ 56,000
Travel	8,000
Office costs	32,000	96,000
Income taxes		33,600	1,809,600
Operating profit			50,400
Beginning retained earnings			402,400
Subtotal			$ 452,800
Less dividends			20,000
Ending retained earnings . .			$ 432,800

Required

Prepared a budgeted income statement and balance sheet.

(CMA adapted)