Question

Sown below are the totals from period budgets of Terrell corporation for the current year:

Revenue budget $100,000

Materials usage from production budget $15,000

Labor Cost Budget $20,000

Manufacturing overhead budget $20,000

General and Administrative budget $30,000

Capital expenditure budget $20,000

Work in process inventories:

Beginning of year $10,000

End of Year $5,000

Finished Goods inventory:

Beginning of year $15,000

End of Year $10,000

Tax Rate 40%

Required: Prepare a forecasted after tax Income Statement for the current year, be sure to show gross margin (GM), and profit before tax (PBT) and profit after tax (PAT).

Answer 1

	Terrell Corporation Budgeted/ Comparative  Income Statement
		$
Budgeted Sales Revenue		100,000
Less : Budgeted Cost of Goods Sold	Note 1.	65,000
Gross Margin		35,000
Budgeted Selling and Adminitration Expenses
General and Administrative budgeted		30,000
Budgeted Profit before Tax (PBT)		5,000
Tax @40%	15000*40%	2,000
Budgeted Profit after Tax (PAT)		3,000

Working Note

1) Statement of Budgeted Cost of Goods Sold

	$	$
Material used in Production	15000
Direct Labour Cost	20000
Manufacturing overhead	20000
Total Manufacturng Cost		55000
Add : Beginning Work in Process Inventory		10000
Less : Ending Work in Process Inventory		(5000)
Cost of Goods Manufactured		60000
Add: Beginning Finished Goods Inventories		15000
Less :Ending Finished Goods Inventories		(10000)
Budgeted Cost of Goods Sold		65000

2. Capital Expenditure are not directly charge to the Income statement , Capital expenditure are the expenditure with future Benefit , and if incurre for purchase of Depreciable assets , then it amortised over the life of assets to Income statement by way of Depreciation . As nothing is Provided in Question relating to life or Depreciation . Assume capital expenditure is for non depreciable assets , hence no treatment will be given in Income Statement for capital Expenditure .

3. Selling and Administrative expenses are the after production expenses , and a Period cost , hence it does not include in Cost of Goods sold , but directly charge to Income Statement as Selling and Adminstrative expenses.