As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y9, the following tentative trial balance as of December 31, 20Y8, is prepared by the Accounting Department of Regina Soap Co.: Cash $105,900 Accounts Receivable 204,400 Finished Goods 42,900 Work in Process 28,600 Materials 47,000 Prepaid Expenses 3,500 Plant and Equipment 526,300 Accumulated Depreciation—Plant and Equipment $226,300 Accounts Payable 149,100 Common Stock, $10 par 350,000 Retained Earnings 233,200 $958,600 $958,600
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y9, the following tentative
| Cash | $105,900 | ||
| 204,400 | |||
| Finished Goods | 42,900 | ||
| Work in Process | 28,600 | ||
| Materials | 47,000 | ||
| Prepaid Expenses | 3,500 | ||
| Plant and Equipment | 526,300 | ||
| $226,300 | |||
| Accounts Payable | 149,100 | ||
| Common Stock, $10 par | 350,000 | ||
| 233,200 | |||
| $958,600 | $958,600 |
Factory output and sales for 20Y9 are expected to total 26,000 units of product, which are to be sold at $90 per unit. The quantities and costs of the inventories at December 31, 20Y9, are expected to remain unchanged from the balances at the beginning of the year.
Budget estimates of manufacturing costs and operating expenses for the year are summarized as follows:
| Estimated Costs and Expenses | ||||
| Fixed (Total for Year) |
Variable (Per Unit Sold) |
|||
| Cost of goods manufactured and sold: | ||||
| Direct materials | _ | $23 | ||
| Direct labor | _ | 7 | ||
| Factory |
||||
| Depreciation of plant and equipment | $26,000 | _ | ||
| Other factory overhead | 8,100 | 4 | ||
| Selling expenses: | ||||
| Sales salaries and commissions | 93,300 | 11.5 | ||
| Advertising | 78,000 | _ | ||
| Miscellaneous selling expense | 6,800 | 2 | ||
| Administrative expenses: | ||||
| Office and officers salaries | 61,400 | 5.5 | ||
| Supplies | 3,100 | 1 | ||
| Miscellaneous administrative expense | 1,600 | 1.5 |
Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $185,600 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 35,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $142,000 cash in May.
Required:
1. Prepare a budgeted income statement for 20Y9.
| Regina Soap Co. | |||
| Budgeted Income Statement | |||
| For the Year Ending December 31, 20Y9 | |||
| Sales | $ | ||
| Cost of goods sold: | |||
| Direct materials | $ | ||
| Direct labor | |||
| Factory overhead | |||
| Cost of goods sold | |||
| Gross profit | $ | ||
| Operating expenses: | |||
| Selling expenses: | |||
| Sales salaries and commissions | $ | ||
| Advertising | |||
| Miscellaneous selling expense | |||
| Total selling expenses | $ | ||
| Administrative expenses: | |||
| Office and officers salaries | $ | ||
| Supplies | |||
| Miscellaneous administrative expense | |||
| Total administrative expenses | |||
| Total operating expenses | |||
| Income before income tax | $ | ||
| Income tax expense | |||
| Net income | $ |
2. Prepare a budgeted balance sheet as of December 31, 20Y9.
| Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9 |
|||
|---|---|---|---|
| Assets | |||
| Current assets: | |||
| Cash | $ | ||
| Accounts receivable | |||
| Inventories: | |||
| Finished goods | $ | ||
| Work in process | |||
| Materials | |||
| Prepaid expenses | |||
| Total current assets | $ | ||
| Property, plant, and equipment: | |||
| Plant and equipment | $ | ||
| Accumulated depreciation | |||
| Total property, plant, and equipment | |||
| Total assets | $ | ||
| Liabilities | |||
| Current liabilities: | |||
| Accounts payable | $ | ||
| Common stock | $ | ||
| Retained earnings | |||
| Total stockholders’ equity | |||
| Total liabilities and stockholders’ equity | $ |
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