Question

Budgeted Income Statement and Balance Sheet

As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y4, the following tentative trial balance as of December 31, 20Y3, is prepared by the Accounting Department of Regina Soap Co.:

Cash $85,000
Accounts Receivable 125,600
Finished Goods 69,300
Work in Process 32,500
Materials 48,900
Prepaid Expenses 2,600
Plant and Equipment 325,000
Accumulated Depreciation—
Plant and Equipment $156,200
Accounts Payable 62,000
Common Stock, $10 par 180,000
Retained Earnings 290,700
$688,900 $688,900

Factory output and sales for 20Y4 are expected to total 200,000 units of product, which are to be sold at $5.00 per unit. The quantities and costs of the inventories at December 31, 20Y4, are expected to remain unchanged from the balances at the beginning of the year.
Budget estimates of manufacturing costs and operating expenses for the year are summarized as follows:

Estimated Costs and Expenses
Fixed Variable
(Total for Year) (Per Unit Sold)
Cost of goods manufactured and sold:
Direct materials _ $1.10
Direct labor _ 0.65
Factory overhead:
Depreciation of plant and equipment $40,000 _
Other factory overhead 12,000 0.40
Selling expenses:
Sales salaries and commissions 46,000 0.45
Advertising 64,000 _
Miscellaneous selling expense 6,000 0.25
Administrative expenses:
Office and officers salaries 72,400 0.12
Supplies 5,000 0.10
Miscellaneous administrative expense 4,000 0.05

Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $30,000 on 20Y4 taxable income will be paid during 20Y4 . Regular quarterly cash dividends of $0.15 per share are expected to be declared and paid in March, June, September, and December on 18,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $75,000 cash in May.
Required:
1. Prepare a budgeted income statement for 20Y4.
2. Prepare a budgeted balance sheet as of December 31, 20Y4.

Answer 1

Regina Soap Co.

1. Budgeted income statement for 20Y4:

Sales = $1,000,000

less Cost of Sales = $482,000

Gross Profit = $518,000

less Selling Expenses = $256,000

less Administrative expenses = $135,400

Income before Taxes = $126,600

Federal Income Tax = $30,000

Income after Taxes = $96,600

Retained Earnings b/f = $290,700

less Dividends = 10,800 ($0.15 x 18,000 x 4)

Retained Earnings c/f = $376,500

2. Budgeted balance sheet as of December 31, 20Y4:

Cash $95,800

Accounts Receivable 125,600

Finished Goods 69,300

Work in Process 32,500

Materials 48,900

Prepaid Expenses 2,600

Plant and Equipment 400,000

Accumulated Depreciation—

Plant and Equipment ($196,200) = ($156,200 + 40,000)

Total = $578,500

Accounts Payable $62,000

Common Stock, $10 par 180,000

Retained Earnings 376,500

Total = $618,500

Step-by-step explanation:

a) Cost of goods manufactured and sold budget:

Direct materials = $220,000 ($1.10 x 200,000 units sold)

Direct labor = $130,000 ($0.65 x 200,000 units sold)

Factory Overhead:

Depreciation of plant and equipment $40,000

Other factory overhead $92,000 (12,000 + 0.40 x 200,000)

Total = $482,000

b) Selling Expenses Budget:

Sales salaries and commissions $136,000(46,000 + 0.45

x 200,000)

Advertising 64,000

Miscellaneous selling expense $56,000 (6,000 + 0.25 x 200,000)

Total = $256,000

c) Administrative Expenses Budget:

Office and officers salaries $96,400 (72,400+ 0.12 x 200,000)

Supplies 25,000 (5,000 + 0.10 x 200,000)

Miscellaneous administrative expense $14,000( 4,000 + 0.05 x 200,000)

Total = $135,400

d) Sales Budget:

Sales units = 200,000

Sales price = $5.00

Sales Value = $1,000,000

e) Cash Budget:

Beginning Balance - $85,000

Sales - $1,000,000

Cost of sales ($482,000)

Selling Expenses ($256,000)

Administrative Expenses ($135,400)

Purchase of Equipment ($75,000)

Payment of Taxes ($30,000)

Payment of Quarterly Dividends ($10,800)

Ending Balance = $95,800

f) Plant and Equipment

Balance - $325,000

Purchase - $75,000

Total = $400,000

g) I could not reconcile the balance sheet balances, which triggered a difference of $40,000, due to time constraint.