Final answer:
The budgeted income statement for the first quarter shows total revenues of $3,975,000 and total costs of $3,247,850. The operating income is $727,150, and after deducting the income tax expense of $290,860, the net income is $436,290.
Step-by-step explanation:
To prepare the budgeted income statement for the first quarter, we need to calculate the total revenues and total costs.
Total revenues can be calculated by multiplying the sales quantity (159,000 units) by the selling price ($25 per unit). This gives us $3,975,000.
Total costs consist of cost of goods sold, sales commissions, rent, advertising, office salaries, and depreciation. Cost of goods sold can be calculated by multiplying the sales quantity (159,000 units) by the cost per unit ($12). This gives us $1,908,000. Sales commissions can be calculated by multiplying the total sales dollars ($3,975,000) by the commission rate (9%). This gives us $357,750. Rent, advertising, office salaries, depreciation, and interest expenses are given as $47,000, $527,000, $237,000, $131,000, and 2% of $290,000, respectively. These expenses amount to $982,100.
Therefore, the total costs are $1,908,000 + $357,750 + $982,100 = $3,247,850.
To calculate the operating income, we subtract the total costs from the total revenues: $3,975,000 - $3,247,850 = $727,150.
Considering the tax rate of 40%, the income tax expense will be 40% of $727,150, which is $290,860.
Finally, subtracting the income tax expense from the operating income, we can calculate the net income: $727,150 - $290,860 = $436,290.
Budgeted Income Statement for the First Quarter:
Total Revenues: $3,975,000
Cost of Goods Sold: $1,908,000
Sales Commissions: $357,750
Rent: $47,000
Advertising: $527,000
Office Salaries: $237,000
Depreciation: $131,000
Interest: $5,800 (2% of $290,000)
Total Costs: $3,247,850
Operating Income: $727,150
Income Tax Expense: $290,860
Net Income: $436,290
The question requires the creation of a budgeted income statement for Fortune Incorporated, involving calculating total sales revenue, cost of goods sold, other expenses, and income taxes. The student must follow several calculation steps to prepare this financial statement accurately.
The question involves preparing a budgeted income statement for Fortune Incorporated for the first quarter. Calculations will be based on the provided financial details such as sales, cost of goods sold, operating expenses, and other expenses. To create the income statement, the following steps and calculations will be used:
Determine total sales revenue by multiplying the number of units sold by the price per unit.
Compute cost of goods sold (COGS) by multiplying the number of units sold by the cost per unit.
Calculate total expenses, which include sales commissions (9% of sales revenue), fixed expenses (rent, advertising, office salaries, and depreciation), and interest.
Calculate pre-tax income by subtracting total expenses (including COGS) from total sales revenue.
Compute the income tax expense, assuming a 40% tax rate on pre-tax income.
Determine the net income by subtracting the income tax expense from the pre-tax income.