The following information is available for year 1 for Pepper Products Sales reve

Question

The following information is available for year 1 for Pepper Products Sales revenue (110,000 units) Manufacturing costs $2,200,000 Materials Variable cash costs Fixed cash costs Depreciation (fixed) $ 131,000 112,000 258,000 787,000 Marketing and administrative costs Marketing (variable, cash) Marketing depreciation Administrative (fixed, cash) Administrative depreciation 332.000 117,000 398,000 59,000 $2,194,000 $ 6,000 Total costs Operating profits All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to fall by 7 percent, but prices are expected to rise by 10 percent. Material costs per unit are expected to increase by 14 percent Other unit variable manufacturing costs are expected to decrease by 5 percent per unit. Fixed cash costs are expected to increase by 6 percent Variable marketing costs will change with unit volume. Administrative cash costs are expected to increase by 7 percent Inventories are kept at zero. Pepper Products operates on a cash basis

Explanation / Answer

Pepper Products Cash basis budgeted income statement For year 2 Sales Revenue 2250600 Manufacturing costs (Cash) Materials 138886.2 Other variable costs 98952 Fixed cash costs 273480 Total cash manufacturing costs 511318.2 Marketing and administrative costs: Marketing (variable, cash) 308760 Adminstrative (fixed, cash) 425860 Total cash marketing and administrative costs 734620 Total cash costs 1245938 Operating profit 1004662 Calculations Sales Revenue = 2,200,000 x 0.93 x 1.10 Materials = 131,000 x 0.93 x 1.14 Other variable costs = 112,000 x 0.93 x 0.95 Fixed cash costs = 258000*1.06 Marketing variable cash = 332,000*0.93 Adminstrative fixed cash = 398,000 x 1.07

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