Rhodes, Inc., is a fast-growing start-up firm that manufactures bicycles. The fo

Question

Rhodes, Inc., is a fast-growing start-up firm that manufactures bicycles. The following income statement is available for July:


Revenues (200 units @ $750 per unit) $ 150,000

Less
Manufacturing costs
Variable costs 21,840
Depreciation (fixed) 22,950
Marketing and administrative costs
Fixed costs (cash) 56,340
Depreciation (fixed) 19,050

Total costs $ 120,180

Operating profits $ 29,820


Sales volume is expected to increase by 20 percent in August, but the sales price is expected to fall 10 percent. Variable manufacturing costs are expected to increase by 3 percent per unit in August. In addition to these cost changes, variable manufacturing costs also will change with sales volume. Marketing and administrative cash costs are expected to increase by 10 percent.

Rhodes operates on a cash basis and maintains no inventories. Depreciation is fixed and should remain unchanged over the next three years.

Required:

Prepare a budgeted income statement for August.

Explanation / Answer

budgeted income statement for August. units sold=200+20%=240 units unit price=750-10%=$675 sales Revenues (240 units @ $675 per unit) $ 162000 LESS:-Manufacturing costs Variable costs (21,840/200)+3%=112.476*240=26994 Depreciation (fixed) 22,950 LESS:-Marketing and administrative costs Fixed costs (cash) 56,340+10%=61974 Depreciation (fixed) 19,050 Operating profits:-$31032

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