Gaston Company’s accountant has prepared the following budget data for the year: Sales.............................................................. 150,000 units Selling price.................................................. $25 per unit Variable expenses......................................... $15 per unit Fixed manufacturing expenses...................... $800,000 Fixed selling and administrative expenses..... $700,000 Gaston’s president is unhappy with the budget and has discussed his concern with a friend who owns an advertising agency. His friend convinces him that an aggressive advertising campaign would increase units sold by 20%, and increase the selling price per unit by 4%. If Gaston pays $280,000 to implement the advertising program and the anticipated increase in units sold and selling price per unit actually occur, operating income would: Answer choices decrease by $280,000 increase by $20,000 increase by $480,000 increase by $200,000
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.
Gaston Company’s accountant has prepared the following budget data for the year:
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|
Sales.............................................................. |
150,000 units |
|
|
Selling price.................................................. |
$25 per unit |
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|
Variable expenses......................................... |
$15 per unit |
|
|
Fixed manufacturing expenses...................... |
$800,000 |
|
|
Fixed selling and administrative expenses..... |
$700,000 |
Gaston’s president is unhappy with the budget and has discussed his concern with a friend who owns an advertising agency. His friend convinces him that an aggressive advertising campaign would increase units sold by 20%, and increase the selling price per unit by 4%. If Gaston pays $280,000 to implement the advertising program and the anticipated increase in units sold and selling price per unit actually occur, operating income would:
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