Question

The following information is available for year 1 for Pepper Products:
  

Sales revenue (200,000 units)	$	2,850,000
Manufacturing costs
Materials	$	168,000
Variable cash costs		142,400
Fixed cash costs		327,600
Depreciation (fixed)		999,000
Marketing and administrative costs
Marketing (variable, cash)		422,400
Marketing depreciation		149,600
Administrative (fixed, cash)		509,200
Administrative depreciation		74,800
Total costs	$	2,793,000
Operating profits	$	57,000

  
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 15 percent. Material costs per unit are expected to increase by 12 percent. Other unit variable manufacturing costs are expected to decrease by 10 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 5 percent. Inventories are kept at zero. Pepper Products operates on a cash basis.

Prepare a budgeted income statement for year 2.

	PEPPER PRODUCTS Budgeted Income Statement For Year 2 Manufacturing costs: Total manufacturing costs $0 Marketing and administrative costs: Total marketing and administrative costs $0 Total costs $0

Answer 1

Pepper Products Budgeted Income Statement Year 2
Sales Revenue ( $ 2,850,000 x 0.95 x 1.15 )		$ 3,113,625
Manufacturing Costs
Materials ( $ 168,000 x 0.95 x 1.12 )	$ 178,752
Variable Cash Costs ( $ 142,400 x 0.95 x 0.90 )	121,752
Fixed Cash Costs	340,704
Depreciation	999,000
Total Manufacturing Costs		1,640,208
Marketing and Administrative Costs
Marketing ( variable, cash )	401,280
Marketing depreciation	149,600
Administrative ( fixed, cash )	534,660
Administrative Depreciation	74,800
Total Marketing and Administrative Costs		1,160,340
Total Costs		2,800,548
Operating Profits		$ 313,077