Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates: Sales revenues (37,500 units) $ 2,500,000 Manufacturing costs Materials $ 400,000 Variable cash costs 545,000 Fixed cash costs 216,000 Depreciation (fixed) 267,000 Marketing and administrative costs Marketing (variable, cash) 285,000 Marketing depreciation 67,800 Administrative (fixed, cash) 270,300 Administrative depreciation 25,200 Total costs $ 2,076,300 Operating profits $ 423,700 All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $29,100 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $42,000. Sales volume and prices are expected to increase by 8 percent and 3 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 6 percent and variable manufacturing costs will decrease by 5 percent. Fixed cash manufacturing costs are expected to decrease by 9 percent. Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Gulf States operates on a cash basis. Problem 13-53 (Static) Prepare Budgeted Financial Statements (LO 13-4, 6) Required: Prepare a budgeted income statement for year 2.
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.
Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates:
| Sales revenues (37,500 units) | $ | 2,500,000 |
| Materials | $ | 400,000 |
| Variable cash costs | 545,000 | |
| Fixed cash costs | 216,000 | |
| 267,000 | ||
| Marketing and administrative costs | ||
| Marketing (variable, cash) | 285,000 | |
| Marketing depreciation | 67,800 | |
| Administrative (fixed, cash) | 270,300 | |
| Administrative depreciation | 25,200 | |
| Total costs | $ | 2,076,300 |
| Operating profits | $ | 423,700 |
All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $29,100 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $42,000. Sales volume and prices are expected to increase by 8 percent and 3 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 6 percent and variable manufacturing costs will decrease by 5 percent. Fixed cash manufacturing costs are expected to decrease by 9 percent.
Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Gulf States operates on a cash basis.
Problem 13-53 (Static) Prepare Budgeted Financial Statements (LO 13-4, 6)
Required:
Prepare a
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