Question

The following information is available for year 1 for Pepper Products: $2,760,000 $ Sales revenue (120,000 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 164,000 140,000 323,000 985,000 416,000 147,000 500,000 74.000 52, 749,000 $ 11,000 All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to fall by 8 percent but prices are expected to rise by 14 percent. Material costs per unit are expected to increase by 15 percent. Other unit variable manufacturing costs are expected to decrease by 8 percent per unit Fixed cash costs are expected to increase by 7 percent Variable marketing costs will change with unit volume. Administrative cash costs are expected to increase by 8 percent. Inventories are kept at zero. Pepper Products operates on a cash basis. Required: Prepare a budgeted income statement for year 2. (Do not round Intermediate calculations. Round your final answers to the nearest whole dollar amounts.)

Answer 1

PEPPER PRODUCTS
Budgeted Income Statement
For Year 2
Sales Revenue (A) (W.N. 1)	$2,894,688
Manufacturing Costs:
Materials (W.N. 2)	$174,432
Variable cash costs (W.N. 3)	$118,835
Fixed cash costs (W.N. 4)	$345,610
Depreciation (fixed) (W.N. 5)	$985,000
Total Manufacturing Costs (B)	$1,623,877
Marketing and Administrative Costs:
Marketing (variable, cash) (W.N. 6)	$382,720
Marketing Depreciation (W.N. 5)	$147,000
Administrative (fixed, cash) (W.N. 7)	$540,000
Administrative Depreciation (W.N. 5)	$74,000
Total Marketing and Administrative Costs (C)	$1,143,720
Total Costs (B+C=D)	$2,767,597
Operating Profits (A-D)	$127,091
Working Notes:
Sales Units for year 2 = 1,20,000 * 92% = 1,10,400 units
W.N. 1 - Sale Price Per unit = $23 + $23 * 14% = $26.22
Sales Revenue = 1,10,400 units * $26.22 = $2,894,688
W.N. 2 - Material Price per unit For year 1 = $164,000/120,000 units = $1.37 (approx.)
Material Price per unit For year 2 = $1.37 *115% = $1.58
Material cost = 110,400 units * $1.58 = $174,432
W.N. 3 - Variable Cost per unit for year 1 = $140,000/120,000 units = $1.17
Variable Cost per unit for year 2 = $1.17 * 92% = $1.0764
Variable Cost = 110400 units * $1.0764 = $118,835 (approx.)
W.N. 4 - Fixed Cash Costs = $323,000 * 107% = $345,610
W.N. 5 -  All depreciation charges are fixed and are expected to remain the same for year 2 , So there is no change.
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W.N. 6 - Marketing Variable Cost = $416,000/120,000 units * 110,400 units = $382,720
W.N. 7 - Administrative Fixed Cost = $500,000 *108% = $540,000