Pendleton Company, a merchandising company, is developing its master budget for

Question

Pendleton Company, a merchandising company, is developing its master budget for 2015. The income statement for 2014 is as follows:

The following are management's goals and forecasts for 2015:

1. Selling prices will increase by 6 percent, and sales volume will increase by 4 percent.

2. The cost of merchandise will increase by 3 percent.

3. All operating expenses are fixed and are paid in the month incurred. Price increases for operating expenses will be 10 percent. The company uses straight-line depreciation.

4. The estimated uncollectibles are 2 percent of budgeted sales.

REQUIRED: Prepare a budgeted functional income statement for 2015.

Gross sales $750,000 Less estimated uncollectible accounts (7,500) Net sales 742,500 Cost of goods sold (430,000) Gross profit 312,500 Operating expenses (including $25,000 depreciation) (200,500) Net income $112,000

Explanation / Answer

Functional Income Statement For the Year 2015 Particulars Amount Gross Sales ($750,000 x 1.04 x 1.06) $826,800 Less: Estimated Uncollectible Accounts $16,536 Net Sales $810,264 Cost of Goods Sold ($430,000 x 1.04 x 1.03) $460,616 Gross Profit $349,648 Operating Expenses except Depreciation ($200,500 - $25,000) x (1.10) $193,050 Depreciation $25,000 Net Income $131,598

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