Question

The following information is available for year 1 for Pepper Products:

    

Sales revenue (210,000 units)	$	3,150,000
Manufacturing costs
Materials	$	168,000
Variable cash costs		142,400
Fixed cash costs		327,600
Depreciation (fixed)		989,000
Marketing and administrative costs
Marketing (variable, cash)		422,400
Marketing depreciation		159,600
Administrative (fixed, cash)		509,200
Administrative depreciation		84,800
Total costs	$	2,803,000
Operating profits	$	347,000

    
All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to fall by 4 percent, but prices are expected to rise by 18 percent. Material costs per unit are expected to increase by 15 percent. Other unit variable manufacturing costs are expected to decrease by 11 percent per unit. Fixed cash costs are expected to increase by 5 percent.

  

Variable marketing costs will change with unit volume. Administrative cash costs are expected to increase by 6 percent. Inventories are kept at zero. Pepper Products operates on a cash basis.    

Required:

Estimate the cash from operations expected in year 2. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.)

PEPPER PRODUCTS Cash Basis Budgeted Income Statement For Year 2 Sales revenue Manufacturing costs (cash): Materials Other variable costs Fixed cash costs $ Total cash manufacturing costs Marketing and administrative costs: Marketing (variable, cash) Administrative (fixed, cash) Total cash marketing and administrative costs Total cash costs Cash operating profit $ 0

Answer 1

Sales Revenue [3150000*1.18*0.96]	35,68,320
Manufacturing Costs (Cash):
Materials [168000*1.15*0.96	1,85,472
Variable Cash Cost [142400*0.89*0.96]	1,21,667
Fixed Cash Cost [327600*1.05]	3,43,980
	6,51,119
Marketing and administrative costs:
Marketing [422400*0.96]	4,05,504
Administrative (fixed, cash) [509200*1.06]	5,39,752
	9,45,256
Total Cash Cost	15,96,375
Cash Operating Profit	19,71,945