Question

Walker House, Inc., a multinational company based in Maryland, organizes and coordinates art shows and auctions throughout the world. Budgeted and actual costs and expenses for 2018 are compared in the following schedule.

                                                                                   2018 Amounts

Expense items                                    Budget                        Actual

Salaries expense, staging                    $480,000                     $513,000

Salaries expense, executive                380,000                     447,000

Travel costs                                         640,000                     652,000

Auctioneer services                              540,000                     450,000

Space rental costs                               251,000                     247,000

Printing costs                                      192,000                     182,000

Advertising expense                           169,000                     183,000

Insurance, merchandise                           85,000                         77,000

Insurance, liability                                   64,000                         67,000

Home office costs                               209,000                     220,000

Shipping costs                                     105,000                     113,000

Miscellaneous                                          25,000                         26,000

Total expenses                                 $3,140,000                 $3,177,000

Net sales                                          $6,200,000                  $6,370,000

For 2019, the following fixed costs have been budgeted: executive salaries, $440,000; advertising expense, $190,000; merchandise insurance, $80,000; and liability insurance, $68,000. Additional information follows.

1. Net sales are expected to be $6,400,000 in 2019.
2. Salary expenses for staging will increase 20 percent over actual figures for 2018.
3. Travel costs are expected to be 11 percent of net sales.
4. Auctioneer services will be billed at 10 percent of net sales.
5. Space rental costs will go up 20 percent from 2018 budgeted amounts.
6. Printing costs are expected to be $190,000 in 2019.
7. Shipping costs are expected to rise 20 percent over 2018 budgeted amounts.
8. Miscellaneous expenses for 2019 will be budgeted at $28,000.
1. Home office costs are budgeted for $230,000 for 2019.

Required:

1. Prepare the company’s budgeted income statement for 2019.
2. Should the budget director be worried about the trend in the company’s operations? Be specific.

Answer 1

GENERAL	BUDGET OF 2019
SALARY EXPENSES STAGING	615,600
SALARY EXPENSES EXECUTIVE	440,000
TRAVEL COST(11% OF NET SALE)	704,000
Auctioneer services	640,000
SPACE RENTAL COST	301,200
PRINTING COST	190,000
ADVERTISEMENT EXPENSES	190,000
INSURANCE MERCHANDISE	80,000
INSURANCE LIABILITY	68,000
HOME OFFICE COST	230,000
SHIPPING COST	126,000
Miscellaneous	28,000
TOTAL EXPENSES	3,612,800
NET SALE	6,400,000
NET INCOME	2,787,200

YES BUDGET DIRECTOR TO BE WORRIED ABOUT THE TREND IN THE COMPANY'S OPERATION BECAUSE THERE ARE LARGE AMOUNT OF INCREASE IN THE EXPENSES BUT LOW AMOUNT OF INCREASE IN THE NET SALE SO COMPANY'S NET PROFIT IS DECREASED