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.
![The following information is available for Fairmount Industries from year 1 operations:
Sales revenue (58,000 units)
Manufacturing costs
Materials
Variable cash costs
Fixed cash costs
Depreciation (fixed)
Marketing and administrative costs
Marketing (variable, cash)
Marketing depreciation
Administrative (fixed, cash)
Administrative depreciation
Total costs
Operating profits (losses)
$ 1,685,000
$ 253,000
558,000
340,000
173,000
184,000
54,000
175,000
21,500
$ 1,758,500
$ (73,500)
All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $35,000 will be
fully depreciated by the end of year 1 and will not be replaced with new equipment because it is still operating to
specification. Sales volume is expected to decrease by 2 percent. Sales price is expected to increase by 8 percent. On a
per-unit basis, expectations are that materials costs will decrease by 5 percent and variable manufacturing cash costs will
increase by 4 percent. Fixed cash manufacturing costs are expected to increase by 12 percent.
Variable marketing costs will change with volume. Administrative cash costs are expected to decrease by 15 percent.
Inventories are kept at zero. Fairmount Industries operates on a cash basis. No change is expected in marketing or
administrative depreciation.
Required:
Prepare a budgeted income statement for year 2.
Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.
Fairmount Industries
Budgeted Income Statement
Sales revenue
Manufacturing costs:
Depreciation (fixed)
Variable cash costs
Marketing depreciation
For Year 2
Materials
Total manufacturing cocte
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