Question

Gig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting process:

Budgeted unit sales 660
Selling price per unit $ 2,050
Cost per unit $ 1,480
Variable selling and administrative expenses (per unit) $ 85
Fixed selling and administrative expenses (per year) $245,000
Interest expense for the year $ 21,000


Required:
Prepare the company's budgeted income statement using an absorption income statement format

Answer 1

Sales revenue 1,353,000 (A)

Cost of Goods Sold (976, 800‬) (B)

Gross Profit 376,200

S&A expense (301,100) (C)

Operating Income 75,100

Interest expense (21,000)

Net income 54,100

Step-by-step explanation:

(A) budgeted sales x sales price = 660 x 2,050

(B) budgeted sales x unit cost = 660 x 1, 480

(C) budgeted sales x variable S&A + fixed S&A =

600 x 85 + 245,000 = 301,100

Under absorption cost we do not capitalize the S&A expense.

we don't calculate contribution margin, we calculate gross profit, which is the difference between the sales revenues and the cost of goods sold