Problem 10-1 (Part Level Submission) a. Prepare a budgeted income statement for

Question

Problem 10-1 (Part Level Submission)

a. Prepare a budgeted income statement for the first quarter of 2015.

b. Prepare a cash budget for the first quarter of 2015.

Sales

Contribution margin

Variable cost of sales

Fixed production costs

Fixed selling and administrative expenses

Income before taxes

Taxes on income

Net income

Problem 10-1 (Part Level Submission)

The results of operations for the Preston Manufacturing Company for the fourth quarter of 2014 were as follows: Sales $ 530,000 Less variable cost of sales 318,000 Contribution margin 212,000 Less fixed production costs $ 106,000 Less fixed selling and administrative expenses 53,000 159,000 Income before taxes 53,000 Less taxes on income 21,200 Net income $ 31,800
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 $ 188,000 Accounts receivable 212,000 Inventory 399,000 Total current assets 799,000 Property, plant, and equipment 450,000 Less accumulated depreciation 135,000 Total assets $ 1,114,000 Liabilities and owners’ equity: Accounts payable $ 76,320 Common stock 542,000 Retained earnings 495,680   Total liabilities and owners’ equity $ 1,114,000
Additional information: 1. Sales and variable costs of sales are expected to increase by 12 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 $8,000 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.

a. Prepare a budgeted income statement for the first quarter of 2015.

Preston Manufacturing Company
Budgeted Income Statement for the Quarter Ended March 31, 2015

b. Prepare a cash budget for the first quarter of 2015.

( Entry list)

Sales

Contribution margin

Variable cost of sales

Fixed production costs

Fixed selling and administrative expenses

Income before taxes

Taxes on income

Net income

Explanation / Answer

Answer:a

Answer:b Cash budget

Preston Manufacturing Company Budgeted Income Statement Particulars Amount ($) Explanation Sales 593600 530000*1.12 Less: Variable cost of sales 356160 318000*1.12 Contribution margin 237440 Less: Fixed Production cost 107940 (106000-9000)*1.02+9000 Less: Fixed selling & Administrative expenses 54350 (53000-8000)*1.03+8000 Income before taxes 75150 Less: Taxes 30060 Net income 45090

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