Concept Introduction:
Budgeted income statement can also be prepared to know the results of the changes if a business opts for those changes in revenues or costs etc.
Requirement 1
To prepare:
Budgeted Income statement for the computer furniture segment for the month of April, May and June.
Answer to Problem 22SP
Solution:
BUSINESS SOLUTIONS - Computer Furniture Segment | |||
Budgeted Segment Income Statement | |||
For the Quarter ended on Jun 30, 2018 | |||
April | May | June | |
Sales | 69,600 | 75,550 | 81,500 |
Cost of Goods sold | 44,000 | 47,750 | 51,500 |
Gross profit | 25,600 | 27,800 | 30,000 |
Expenses | |||
Sales commission | 6,960 | 7,555 | 8,150 |
Advertising expenses | 3,300 | 3,300 | 3,300 |
Total fixed expenses | 16,000 | 16,000 | 16,000 |
Total expenses | 26,260 | 26,855 | 27,450 |
Net Income | -660 | 945 | 2,550 |
Explanation of Solution
The budgeted income statement is prepared as under –
1. The sales are calculated –
April | |||
Units sold | Per unit sale price | Total | |
Desks | 48 | 1,150 | 55,200 |
Chairs | 32 | 450 | 14,400 |
Total sales | 69,600 | ||
May | |||
Units sold | Per unit sale price | Total | |
Desks | 52 | 1,150 | 59,800 |
Chairs | 35 | 450 | 15,750 |
Total sales | 75,550 | ||
June | |||
Units sold | Per unit sale price | Total | |
Desks | 56 | 1,150 | 64,400 |
Chairs | 38 | 450 | 17,100 |
Total sales | 81,500 |
This is how sales are calculated.
2. Cost of goods sold
April | |||
Units sold | Per unit Cost of goods sold | Total | |
Desks | 48 | 750 | 36,000 |
Chairs | 32 | 250 | 8,000 |
Total sales | 44,000 | ||
May | |||
Units sold | Per unit Cost of goods sold | Total | |
Desks | 52 | 750 | 39,000 |
Chairs | 35 | 250 | 8,750 |
Total sales | 47,750 | ||
June | |||
Units sold | Per unit Cost of goods sold | Total | |
Desks | 56 | 750 | 42,000 |
Chairs | 38 | 250 | 9,500 |
Total sales | 51,500 |
3. Gross profit is calculated as using the formula
4. Sale commissions are 10 % of the sales.
Thus, the sales commission for the Quarter is –
April | May | June | |
Sales (1) | 69,600 | 75,550 | 81,500 |
Sales commission on sales (2) | 10% | 10% | 10% |
Amount of sales commission (1) X (2) | 6,960 | 7,555 | 8,150 |
5. Advertising expenses are same for all the months but increases by 10 %.
Advertising expenses are calculated as under –
6. The fixed expenses are given as fixed
7. The net income is calculated as using the formula –
In this way, the budgeted income statement for the three months have been prepared.
Thus, the budgeted income statement has been prepared for the quarter.
Requirement 2
To determine:
Whether Sanatana Rey should implement the proposed changes or not.
Answer to Problem 22SP
Solution:
No, Sanatana Rey should not implement the proposed changes.
Explanation of Solution
This can be explained as even after increase in the quantities in the desks and chair, the total net income for the quarter was less than the net income for the first quarter.
The net income for the first quarter was $ 20,000 while for the quarter it was = $ 2,835 (-$ 660 + $ 945 + $ 2,550).
The net income was very less when compared. Implementing proposed changes will not be a very good decision.
Thus, Sanatana Rey should not implement the proposed changes.
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Chapter 22 Solutions
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