Question

The following table summarizes historical income statement performance for Company XYZ. Utilizing the historical information provided and the assumptions outlined below, prepare a budget for the upcoming fiscal year and a projection for the following year. In other words, you should have budgets for two years.

Company XYZ Historical Income Statement
	Prior Year 1 Actual	Prior Year 2 Actual
Revenue
Sales	$2,000,000	$2,135,000
Other Operating Revenue	175,000	166,000
Total Revenue	2,175,000	2,301,000
Operating Expenses
Salaries	750,000	772,500
Fringe Benefits	187,500	193,125
Supplies	37,500	38,438
Utilities	55,000	56,650
Insurance	125,000	125,000
Depreciation	200,000	210,000
Other Operating Expenses	275,000	280,500
Total Operating Expenses	1,630,000	1,676,213
Operating Income	545,000	624,788
Interest	185,000	190,000
Earning before Taxes	360,000	434,788
Income Tax (@30%)	108,000	130,436
Net Income	$252,000	$304,351
Operating Margin	25.1%	27.2%
Net Income %	11.6%	13.2%

Additional Historical Information

• Total number of FTEs (full-time equivalent) employees was 14.4
• The Board of Directors approves salary increases each year
• Fringe benefits have not increased over the past few years; however, information suggests that this is not a trend that will continue
• Total net fixed assets for the organization were $2,500,000 in prior year 1 and $2,600,000 in prior year 2

Assumptions for Budget Year 1

• Management has requested an increase in FTEs of 2.5
• Salary increases will be given at 2.5%
• Fringe benefits as a % of total salaries are anticipated to increase 2%
• Inflation for all non-salary expenses is projected to be 2.5%
• Capital purchases for the budget year are projected to be $300,000
• Sales are projected to increase 2.5%
• Other operating revenue is projected to increase $25,000

Assumptions for Budget Year 2

• Management has requested an increase in FTEs of 1.5
• Salary increases will be given at 1.5%
• Fringe benefits as a % of total salaries are anticipated to increase 1%
• Inflation for all non-salary expenses is projected to be 1.5%
• Capital purchases for the budget year are projected to be $150,000
• Sales are projected to increase 3%
• Other operating revenue is projected to increase $25,000

Answer 1

Company XYZ Historical Income Statement Prior Year 1 Prior Year 2 Year 1 Year 2 Actual Actual Budget Budget Revenue | 2,000,000 2,188,375 191,000 2,379,375 2,254,026 Sales 2,135,000 Other Operating Revenue 175,000 Total Revenue Operating Expenses 166,000 216,000 2,175,000 2,301,000 2,470,026 750,000 187,500 37,500 55,000 125,000 200,000 Other Operating Expenses 275,000 |1,630,000 |545,000 185,000 360,000 108,000 252,000 929,280 196,988 39,399 58,350 125,000 240,000 287,513 1,876,529 502,846 190,000 312,846 93,854 |218,992 21% 1,026,937 Salaries 772,500 Fringe Benefits Supplies 193,125 198,957 38,438 40,385 |56,650 Utilities 60,100 Insurance 125,000 125,000 Depreciation 210,000 255,000 280,500 291,825 Total Operating Expenses Operating Income Interest Earning before Taxes Income Tax (@30%) 1,998,204 1,676,213 624,788 471,822 190,000 190,000 434,788 281,822 130,436 84,547 Net Income 304,351 197,275 Operating Margin Net Income % 25.10% 27.20% 19% 11.60% 9% 13.20% 8% Employes 14.4 18,4 14.4 16.9 Aferage Salary per Employee 54,987 55811.78 52,083 53,646