Gulf States Manufacturing has the following data from year 1 operations, which a
ID: 2557740 • Letter: G
Question
Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates $1,620,000 Sales revenues (18,000 units) Manufacturing costs Materials Variable cash costs Fixed cash costs Depreciation (fixed) $ 289,000 395,000 159,000 195,000 Marketing and administrative costs Marketing (variable, cash) Marketing depreciation Administrative (fixed, cash) Administrative depreciation 208,000 51,000 204,000 $ 18,000 $1,519,000 $ 101,000 Total costs Operating profits All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $16,150 will be replaced in year 2 with new equipment that will incur an annual depreclation charge of $22,600. Sales volume and prices are expected to Increase by 10 percent and 6 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 8 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 6 percent. Inventories are kept at zero. Gulf States operates on a cash basisExplanation / Answer
1-BUDGETED STATEMENT
Sales price=1620000/18000=90
increase in sales price=90+6%of90=95.4
increase in sales volume=18000+10%of18000=19800
Revised sales revenue= 19800*95.5=1888920
LESS-
material cost per unit=289000/18000=16+8%=17.28= 19800*17.28= 342144
variable cost per unit=395000/18000=22-2%=21.56= 19800*21.56=426888
fixed costs= 195000-6%= =183300
revised depriciation= 195000-16150+22100= =200950
variable mktg= 208000/18000*19800 =228800
mktg depriciation= =51000
admin fixed cost= 204000+6% =216240
admin depriciation= =18000
OPERATING PROFIT = 221598
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