Madison Booksellers is planning a budget for 2018. The estimate of sales revenue

ID: 2525473 • Letter: M

Question

Madison Booksellers is planning a budget for 2018. The estimate of sales revenue is $1,600,000 and of cost of goods sold is 70 percent of sales revenue. Depreciation on the office building and fixtures is budgeted at $60,000. Salaries and wages are budgeted at $100,000. Advertising has been budgeted at $90,000 and utilities should amount to $70,000. Income tax is estimated at 40 percent of operating income. Required a. Prepare a budgeted income statement for 2018. Use a negative sign only to indicate a net loss for income. Otherwise, do not use negative sings with your Madison Booksellers Budgeted Income Statement For the Year Ending Decemeber 31, 2018 ale Cost of goods sold Gross margin Sales and administrative expenses Depreciation Wages and salaries Advertising Iiliies Net income before taxes Income taxes Net Income (loss) b. Assuming management desired an after-tax income of $105,000 determine the necessary sales volume.

Explanation / Answer

(a) Budgeted Income statement for 2018

Madison Book Sellers

Budgeted Income statement

For the year ending December 31,2018

Sales

16,00,000

Cost of goods sold

11,20,000

Gross Margin

4,80,000

Selling and Administrative Exp

Depreciation

60,000

Wages and Salaries

1,00,000

Advertising

90,000

Utilities

70,000

3,20,000

Net Income Before Taxes

1,60,000

Income Taxes

64,000

Net Income

96,000

(b) Assuming the management desired an after tax income of $105000, determine the necessary sales volume

SALES VOLUME WILL BE $16,50,000

Profit After Tax = $1,05,000

Profit Before Tax = $105000/ 0.60 = $1,75,000

Gross Profit = $175000 + $320000 = $4,95,000

Gross profit rate = 30%

Therefore,Required sales Volume to earn after tax profit of $1,05,000 is equal to $16,50,000

= $4,95,000 / 0.30 = $16,50,000