Question

Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates:

Sales revenues (16,000 units)	$	1,440,000
Manufacturing costs
Materials	$	257,000
Variable cash costs		351,000
Fixed cash costs		141,000
Depreciation (fixed)		173,000
Marketing and administrative costs
Marketing (variable, cash)		184,000
Marketing depreciation		45,000
Administrative (fixed, cash)		180,000
Administrative depreciation	$	16,000
Total costs	$	1,347,000
Operating profits	$	93,000

All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $15,950 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $22,400. Sales volume and prices are expected to increase by 12 percent and 6 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 10 percent and variable manufacturing costs will decrease by 2 percent. Fixed cash manufacturing costs are expected to decrease by 7 percent.

Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 8 percent. Inventories are kept at zero. Gulf States operates on a cash basis.

1.

Required information

Required:

Prepare a budgeted income statement for year 2. (Do not round intermediate calculations.)

Required:

Estimate the cash from operations expected in year 2. (Do not round intermediate calculations.)

Answer 1