[The following information applies to the questions displayed below. Gulf States

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[The following information applies to the questions displayed below. Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates Sales revenues (13,500 units) $1,215,000 costs Materials Variable cash costs Fixed cash costs Depreciation (fixed) $ 217000 295,000 17000 45,000 Marketing and administrative costs 148.000 35,000 140,000 $ 13,000 $ 1.110,000 $ 105,000 Marketing (variable, cash) Administrative (fixed, cash) Administrative depreciation Total costs Operating profits All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $14,650 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $21,100. Sales volume and prices are expected to increase by 11 percent and 5 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 9 percent and variable manufacturing costs will decrease by 2 percent. Fixed cash manufacturing costs are expected to decrease by 6 percent. Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 7 percent. Inventories are kept at zero. Gulf States operates on a cash basis

Explanation / Answer

Hey,

Gulf State Manufacturing

Budgeted Income Statement

For Year 2

Sales Revenues (14985 units)

$ 1416082.50

Manufacturing Costs :

Materials

$ 262548.30

Variable Cash Costs

$ 320901.00

Fixed Cash Costs

$ 136300.00

Depreciation

$ 151450.00

Marketing and Administrative Costs:

Marketing (variable, cash)

$ 164280.00

Marketing depreciation

$ 35000.00

Administrative (Fixed, cash)

$ 149800.00

Administrative Depreciation

$ 13000.00

Total Costs

$ 1233279.30

Operating Profits

$ 182803.20

Depreciation is a non cash expense so it is not included in the calculation below.

Gulf State Manufacturing

Cash Basis Budgeted Income Statement

For Year 2

Sales Revenues (14985 units)

$ 1416082.50

Manufacturing Costs :

Materials

$ 262548.30

Variable Cash Costs

$ 320901.00

Fixed Cash Costs

$ 136300.00

Depreciation

0

Marketing and Administrative Costs:

Marketing (variable, cash)

$ 164280.00

Marketing depreciation

0

Administrative (Fixed, cash)

$ 149800.00

Administrative Depreciation

0

Total Costs

$ 1033829.3

Operating Profits

$ 382253.20

Gulf State Manufacturing

Budgeted Income Statement

For Year 2

Sales Revenues (14985 units)

$ 1416082.50

Manufacturing Costs :

Materials

$ 262548.30

Variable Cash Costs

$ 320901.00

Fixed Cash Costs

$ 136300.00

Depreciation

$ 151450.00

Marketing and Administrative Costs:

Marketing (variable, cash)

$ 164280.00

Marketing depreciation

$ 35000.00

Administrative (Fixed, cash)

$ 149800.00

Administrative Depreciation

$ 13000.00

Total Costs

$ 1233279.30

Operating Profits

$ 182803.20

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