Question

Budgeted Income Statement Coral Seas Jewelry Company makes and sells costume jewelry. For the coming year, Coral Seas expects sales of $15.9 million and cost of goods sold of $8.75 million. Advertising is a key part of Coral Seas' business strategy, and total marketing expense for the year is budgeted at $2.8 million. Total administrative expenses are expected to be $675,000. Coral Seas has no interest expense. Income taxes are paid at the rate of 40 percent of operating income. Required: 1. Construct a budgeted income statement for Coral Seas Jewelry Company for the coming year. Enter your answers in dollars and not in millions Coral Seas Jewelry Company Budgeted Income Statement For the Coming Year Gross margin Operating income

Answer 1

SOLUTION

1.

Sales		15,900,000
Less: Cost of Goods Sold		8,750,000
Gross Margin		7,150,000
Less:
Marketing Expenses	2,800,000
Administrative Expenses	675,000	3,475,000
Operating income		3,675,000
Less: Income Tax (40%)		1,470,000
Net Income		2,205,000

2.

Sales		15,900,000
Less: Cost of Goods Sold		8,750,000
Gross Margin		7,150,000
Less:
Marketing Expenses	2,800,000
Administrative Expenses	675,000	3,475,000
Operating income		3,675,000
Less: Interest Expense		500,000
Income Before Tax		3,175,000
Less: Income Tax (40%)		1,270,000
Net Income		1,905,000

Operating income- No impact

Income before taxes- Reduces from 3,675,000 to 3,175,000. There is an impact of $500,000.

Net income -Reduces from 2,205,000 to 1,905,000. There is an impact of $300,000.