Question

Cycle-1 is a fast-growing start-up firm that manufactures bicycles. The following income statement is available for October: $233,100 27,000 26,700 Sales revenue (370 units @ $630 per unit) Less Manufacturing costs Variable costs Depreciation (fixed) Marketing and administrative costs Fixed costs (cash) Depreciation (fixed) Total costs Operating profits 67,700 23,200 $144,600 $ 88,500 Sales volume is expected to increase by 30 percent in November, but the sales price is expected to fall 5 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 10 percent. 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. (Do not round intermediate calculations.)

Answer 1

To prepare budgeted income statement is:

Budgeted Income Statement For the month of November $287,879 Sales Less Manufacturing costs: Variable costs Depreciation (fixed) Total manufacturing costs Less Marketing and Administrative costs Fixed costs (cash) Depreciation (fixed) 36,503 26,700 S 63,203 74,470 23,200 $ 97,670 S 1,27,006 Total marketing and administrative Operating profits

Working Note:

1.

Computation of increase units of sales volume is:

Increase units of sales volume = Sales volume * (1 + Percentage of increase in sales volume)

= 370 units * (1 + 0.30)

= 370 units * 1.30

= 481 units

Hence, the increase units of sales volume is 481 units.

2.

Computation of decrease in sales price is:

Decrease in sales price = Sales price * (1 - Percentage of decrease in sales price)

= $630 * (1 - 0.05)

= $630 * 0.95

= $598.5

Hence, the decrease in sales price is $598.5

3.

Computation of new sales is:

Net sales = Increase units of sales volume * Decrease in sales price

= 481 units * $598.5

= $287,879

Hence, the new sales is $287,879.

4.

Computation of new variable manufacturing costs is:

New variable costs = (Old variable costs / Old sales volume) * (1 + Percentage of increase in variable manufacturing costs) * Increase units of sales volume

= ($27,000 / 370 units) * (1 + 0.04) * 481 units

= $72.97 * 1.04 * 481 units

= $36,503

Hence, the new variable manufacturing costs is $36,503.

5.

Computation of new marketing and administrative costs is:

New marketing and administrative costs = Old marketing and administrative costs * (1 + Percentage of increase in marketing and administrative costs)

= $67,700 * (1 + 0.10)

= $67,700 * 1.10

= $74,470

Hence, the new marketing and administrative costs is $74,470.

6.

Computation of total manufacturing costs is:

Total manufacturing costs = Variable costs + Depreciation costs

= $36,503 + $26,700

= $63,203

Hence, the manufacturing costs is $63,203.

7.

Computation of total marketing and administrative costs is:

Total marketing and administrative costs = Fixed costs + Depreciation

= $74,470 + $23,200

= $97,670

Hence, the total marketing and administrative costs is $97,670.

8.

Computation of operating profits is:

Operating profits = Sales - Total manufacturing costs - Total marketing and administrative costs

= $287,879 - $63,203 - $97,670

= $127,006

Hence, the operating profits is $127,006.