The results of operations for the Preston Manufacturing Company for the fourth q
ID: 2445918 • Letter: T
Question
The results of operations for the Preston Manufacturing Company for the fourth quarter of 2014 were as follows: Sales $ 540,000 Less variable cost of sales 324,000 Contribution margin 216,000 Less fixed production costs $ 108,000 Less fixed selling and administrative expenses 54,000 162,000 Income before taxes 54,000 Less taxes on income 21,600 Net income $ 32,400 Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of goods sold. Fixed production costs are charged to expense in the period incurred. The company’s balance sheet as of the end of the fourth quarter of 2014 was as follows: Assets: Cash $ 172,000 Accounts receivable 216,000 Inventory 370,000 Total current assets 758,000 Property, plant, and equipment 400,000 Less accumulated depreciation 113,000 Total assets $ 1,045,000 Liabilities and owners’ equity: Accounts payable $ 77,760 Common stock 546,000 Retained earnings 421,240 Total liabilities and owners’ equity $ 1,045,000 Additional information: 1. Sales and variable costs of sales are expected to increase by 10 percent in the next quarter. 2. All sales are on credit with 60 percent collected in the quarter of sale and 40 percent collected in the following quarter. 3. Variable cost of sales consists of 40 percent materials, 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit. 40 percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after purchase. The inventory balance is not expected to change. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred. 4. Fixed production costs (other than $9,000 of depreciation expense) are expected to increase by 2 percent. Fixed production costs requiring payment are paid in the quarter they are incurred. 5. Fixed selling and administrative costs (other than $7,000 of depreciation expense) are expected to increase by 3 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred. 6. The tax rate is expected to be 40 percent. All taxes are paid in the quarter they are incurred. 7. No purchases of property, plant, or equipment are expected in the first quarter of 2015.
Prepare a budgeted income statement for the first quarter of 2015.
Prepare a cash budget for the first quarter of 2015.
Explanation / Answer
Answer:
Answer:
Income statement Particulars Fourth qtr 2014 First qtr 2015 Sales 540000 594000 Less: VC 324000 356400 Contribution margin 216000 237600 Less: Fixed production cost 108000 109980 (108000-9000)1.02+9000 Less:fixed selling and administrative expenses 54000 55410 (54000-7000)*1.03+7000 Income before taxes 54000 72210 Less taxes on income 21600 28884 72210*40% Net income 32400 43326Related Questions
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