Question

*77) Christy Enterprises reports the year-end information from 2015 as follows:*

Sales (100,000 units) $500,000
Less: Cost of goods sold 300,000
Gross profit 200,000
Operating expenses (includes $20,000 of Depreciation) 120,000
Net income $ 80,000

Christy is developing the 2016 budget. In 2016 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.

Required:
Prepare a budgeted income statement for 2016.

Answer 1

To prepare a budgeted income statement for 2016, calculate the new sales revenue, cost of goods sold, gross profit, operating expenses, and net income based on the given information.

Step-by-step explanation:

To prepare a budgeted income statement for 2016, we first need to make adjustments based on the given information.

1. Calculate the new sales revenue by increasing the selling prices by 10% and decreasing the sales volume by 5%. Sales (100,000 units) = $500,000 ⟶ New sales revenue = $500,000 + ($500,000 x 10%) - ($500,000 x 5%)
2. Calculate the new cost of goods sold by applying the expected percentage increase. Cost of goods sold = Sales x Percentage of cost of goods sold
3. Calculate the new gross profit by subtracting the new cost of goods sold from the new sales revenue.
4. Calculate the new operating expenses by adding the expected increase in depreciation to the other variable operating costs.
5. Calculate the new net income by subtracting the new operating expenses from the new gross profit.

Using these calculations, you can prepare a budgeted income statement for 2016.