Below summarizes a historical income statement performance for Company XYZ. Util

Question

Below summarizes a historical income statement performance for Company XYZ. Utilizing the historical information provided and the assumptions outlined below, prepare a budget for the upcoming fiscal year and a projection for the following year. In other words, you should have budgets for two years.

Prior Year 1 Actual Prior Year 2 Actual Budget Year 1 Budget Year 2 Revenue Sales $    2,000,000 $ 2,135,000 Other Operating Revenue            175,000          166,000 Total Revenue        2,175,000      2,301,000 Operating Expenses Salaries            750,000          772,500 Fringe Benefits            187,500          193,125 Supplies              37,500            38,438 Utilities              55,000            56,650 Insurance            125,000          125,000 Depreciation            200,000          210,000 Other Operating Expense            275,000          280,500 Total Operating Expenses        1,630,000      1,676,213 Operating Income            545,000          624,788 Interest            185,000          190,000 Earning before Taxes            360,000          434,788 Income Tax (@30%)            108,000          130,436 Net Income $        252,000 $     304,351 Operating Margin 25.1% 27.2% Net Income % 11.6% 13.2%

Explanation / Answer

Prior Year 1 Actual Prior Year 2 Actual Budget Year 1 Budget Year 2 Revenue Sales 2,000,000    2,135,000 2135000*1.025= 2188375 2188375*1.03= 2254026 Other Operating Revenue 175000          166,000 166000+25000= 191000 191000+25000= 216000 Total Revenue 2,175,000      2,301,000 2379375 2470026 Operating Expenses Salaries 750000 772500 772500/14.4*16.9*1.025= 929280 929280/16.9*18.4*1.015= 1026937 Fringe Benefits            187,500          193,125 193125/772500*1.02*929280= 236966 236966/929280*1.01*1026937= 264487.2 Supplies              37,500            38,438 38438*1.025= 39399 39399*1.015= 39990 Utilities              55,000            56,650 56650*1.025= 58066 58066*1.015= 58937 Insurance            125,000          125,000 125000*1.025= 128125 128125*1.015= 130047 Depreciation            200,000          210,000 210000/2600000*2900000= 234231 234231/2900000*3050000= 246346.4 Other Operating Expense            275,000          280,500 280500*1.025= 287513 287513*1.015= 291826 Total Operating Expenses        1,630,000      1,676,213 1913580 2058570 Operating Income            545,000          624,788 465795 411456 Interest            185,000          190,000 190000+5000 195000 195000+5000= 200000 Earning before Taxes            360,000          434,788 270795 211456 Income Tax (@30%)            108,000          130,436 81239 63437 Net Income $        252,000 $     304,351 189557 148019 Operating Margin 25.10% 27.20% 465795/2379375= 19.58% 411456/2470026= 16.66% Net Income % 11.60% 13.20% 189557/2379375= 7.97% 148019/2470026= 5.99%

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