Question

Fortune, Inc., is preparing its master budget for the first quarter. The company sells a single product at a price of $25 per unit. Sales (in units) are forecasted at 40,000 for January, 60,000 for February, and 50,000 for March. Cost of goods sold is $12 per unit. Other expense information for the first quarter follows. Commissions 10 % of sales dollars Rent $ 17,000 per month Advertising 11 % of sales dollars Office salaries $ 74,000 per month Depreciation $ 55,000 per month Interest 13 % annually on a $210,000 note payable Tax rate 40 % Prepare a budgeted income statement for this first quarter. (Round your final answers to the nearest whole dollar.)

Answer 1

Fortune, Inc.

Budgeted Income Statement for the first quarter ended March 31

Sales revenue $3,750,000

Cost of goods sold 1,800,000

Gross profit $1,950,000

Expenses:

Commission 375,000

Advertising 412,500

Office salaries 222,000

Depreciation 165,000

Interest expense 10,075

Total expenses $1,184,575

Net income $765,425

Step-by-step explanation:

a) Data and Calculations:

Selling price per unit = $25

Forecast sales units:

January 40,000

February 60,000

March 50,000

Total sales for the quarter = 150,000 units

Sales revenue = $3,750,000 (150,000 * $25)

Cost of goods sold = $12 per unit

Cost of goods sold = $1,800,000 (150,000 * $12)

Commission = 10% of sales dollars

Commission = $375,000 ($3,750,000 * 10%)

Rent = $17,000 per month (Total for quarter = $51,000)

Advertising = 11% of sales dollars

Advertising = $412,500 ($3,750,000 * 11%)

Office salaries = $74,000 per month (Total for quarter = $222,000)

Depreciation = $55,000 per month (Total for quarter = $165,000

Interest expense = 13% of $310,000 annually

Interest expense for the quarter = $10,075 ($310,000 * 13% * 1/4)