Question

book contents p to pg go 13-48. Estimate Cash from Operations (LO 13 5) Refer to the data in Problem 13-47. Estimate the cash from operations expected in year 2 13-49. Prepare Budgeted Financial Statements (LO 13 4, 6) eXcel Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates: $2,500,000 Sales revenue (37,500 units)... .. Manufacturing costs Materials.. $400,000 545,000 216,000 267,000 Variable cash costs Fixed cash costs Depreciation (fixed) Marketing and administrative costs Marketing (variable, cash) Marketing depreciation Administrative (fixed, cash) Administrative depreciation 285,000 67,800 270,300 25,200 $2,076,300 Total costs $ 423,700 Operating profits All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $29,100 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $42,000. Sales volume and prices are expected to increase by 8 percent and 3 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 6 percent and variable manufacturing costs will decrease by 5 percent. Fixed cash manufacturing costs are expected to decrease by 9 percent. Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Gulf States operates on a cash basis. Required Prepare a budgeted income statement for year 2 13-50. Estimate Cash from Operations

Answer 1

Solution

Gulf State Manufacturing
Budgeted Income Statement for Year 2
Particulars		Amount ($)	Amount ($)
Sales Revenue			27,81,135.00
Less: Cost of Goods Sold
Variable
Materials	4,24,000.00
Manufacturing Costs	5,17,750.00	9,41,750.00
Fixed
Manufacturing Costs	1,96,560.00
Depreciation	2,79,900.00	4,76,460.00	-14,18,210.00
Gross Profit			13,62,925.00
Less: Selling and Administration Costs
Variable
Marketing Costs	3,07,800.00	3,07,800.00
Fixed
Administrative Costs	2,97,330.00
Depreciation - Marketing	67,800.00
Depreciation - Administrative	25,200.00	3,90,330.00	-6,98,130.00
Operating Revenue			6,64,795.00

Workings:

Note 1	Selling Units in Year 1	37,500
	Total Sales Price	$ 25,00,000.00
	Selling Price per unit
	(2500000 / 37500)	$                66.67
	In Year 2
	Increase in Sales Volume	8%
	In Units
	(37500 X 8%)	3000
	Budgeted Selling units in Year 2
	(37500 + 3000)	40500
	Increase in per unit sales price	3%
	Budgeted Selling price per unit in Year 2
	(66.67 x 1.03)	$                68.67
	So, Sales Revenue
	(40500 X 68.67)	$ 27,81,135.00
Note 2	Increase in Material Cost	6%
	Material costs in Year 1	$    4,00,000.00
	Budgeted Material Cost in Year 2
	(400000 X 1.06)	$    4,24,000.00
	Decrease in Variable Manufacturing Cost	5%
	Variable Manufacturing costs in Year 1	$    5,45,000.00
	Budgeted Variable Manufacturing Cost in Year 2
	(545000 X 0.95)	$    5,17,750.00
	Decrease in Fixed Cash Manufacturing Cost	9%
	Fixed Cash Manufacturing Cost in Year 1	$    2,16,000.00
	Budgeted Fixed Cash Manufacturing Cost in Year 2
	(216000 X 0.91)	$    1,96,560.00
	Increase in Administrative Cash Cost	10%
	Administrative Cash Cost in Year 1	$    2,70,300.00
	Budgeted Administrative Cash Cost in Year 2
	(270300 X 1.10)	$    2,97,330.00
Note 3	Depreciation (Manufacturing) in Year 1	$    2,67,000.00
	Less: Depreciation on Old Equipment to be replaced	$      -29,100.00
	Add: Depreciation on New Equipment	$       42,000.00
	Budgeted Depreciation (Manufacturing) in Year 2	$    2,79,900.00
Note 4	Variable Marketing Cost in Year 1	$    2,85,000.00
	Selling units in Year 1	37,500
	Variable Marketing Cost per unit
	(285000 / 37500)	$                  7.60
	Budgeted Selling Units in year 2	40500
	Budgeted Variable Marketing Cost in Year 2
	(40500 X 7.60)	$    3,07,800.00