13 - 38 Prepare Budgeted Financial Statements Cycle-1 is a fast-growing start-up

Question

13 - 38 Prepare Budgeted Financial Statements

Cycle-1 is a fast-growing start-up firm that manufactures bicycles. The following income statement is available for October:

Sales valume is expected to increase by 20% in November, but the sales price is expected to fall 10%. Variable manufacturing costs are expected to increase by 4% per unit in November. In addition to these cost changes, variable manufacturing casts also will change with sales volume. Marketing and administrative cash costs are expected to increase by 8%.

Cycle-1 operates on a cash basis and maintains no inventories. Depreciation is fixed and should remain unchanged over the next three years.

Required

Prepare a budgeted income statement for November

Sales revenue (300 units @ $600 per unit) $180,000 Less    Manufacturing costs Variable costs $26,000 Depreciation (fixed) $27,540    Marketing and administrative costs Fixed costs (cash) $67,500 Depreciation (fixed) $22,860    Total costs $143,900 Operating profits $36,100

Explanation / Answer

Budgeted income statement for November Sales Revenue=300*1.20*600*.90 194400 Less      Manufacturing costs Variable costs=(26000/300+4)*(300*1.20) 32640 Depreciation 27540      Marketing and administrative costs           Fixed costs (cash) 67500*1.08 72900 Depreciation (fixed) 22860      Total costs 155940 Operating profits 38460

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