Exercise 13-38 Prepare Budgeted Financial Statements (LO 13-6) Cycle-1 is a fast

Question

Exercise 13-38 Prepare Budgeted Financial Statements (LO 13-6) Cycle-1 is a fast-growing start-up firm that manufactures bicycles. The following income statement is available for October $180,000 Sales revenue (300 units @ $600 per unit) Less Manufacturing costs Variable costs Depreciation (fixed) 26,000 27,540 Marketing and administrative costs 67,500 22,860 $ 143,900 $ 36,100 Fixed costs (cash) Depreciation (fixed) Total costs Operating profits Sales volume is expected to increase by 20 percent in November, but the sales price is expected to fall 10 percent. Variable manufacturing costs are expected to increase by 4 percent per unit in November. In addition to these cost changes, variable manufacturing costs also will change with sales volume. Marketing and administrative cash costs are expected to increase by 8 percent. Cycle-1 operates on a cash basis and maintains no inventories. Depreciation is fixed and should remain unchanged over the next three years

Explanation / Answer

Budgeted income statement :

Sales revenue 194400 Less: Manufacturing Cost Variable cost -32448 Depreciation (fixed) -27540 Total Cost of goods sold -59988 Gross profit 134412 Less; Marketing and administrative expense Fixed cost -72900 Depreciation -22860 Total marketing and administrative expense -95760 Operating profit 38652

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