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.
Problem 13-51 (Algo) Prepare Budgeted Financial Statements (LO 13-6)
The following information is available for year 1 for Pepper Products:
| Sales revenue (190,000 units) | $ | 3,800,000 |
| Materials | $ | 224,000 |
| Variable cash costs | 190,000 | |
| Fixed cash costs | 438,000 | |
| 1,336,000 | ||
| Marketing and administrative costs | ||
| Marketing (variable, cash) | 565,000 | |
| Marketing depreciation | 201,000 | |
| Administrative (fixed, cash) | 684,000 | |
| Administrative depreciation | 100,000 | |
| Total costs | $ | 3,738,000 |
| Operating profits | $ | 62,000 |
All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to fall by 5 percent, but prices are expected to rise by 17 percent. Material costs per unit are expected to increase by 8 percent. Other unit variable manufacturing costs are expected to decrease by 7 percent per unit. Fixed cash costs are expected to increase by 4 percent.
Variable marketing costs will change with unit volume. Administrative cash costs are expected to increase by 3 percent. Inventories are kept at zero. Pepper Products operates on a cash basis.
Required:
Prepare a
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