Reference no: EM131839220
PROBLEM - Master Budget
The results of operations for the Preston Manufacturing Company for the fourth quarter of 2011 were'as follows:
Sales $550,000
Less variable cost of sales 330,000
Contribution margin 220,000
Less fixed production costs $110,000
Less fixed selling and administrative expenses 55,000 165,000
Income before taxes 55,000
Less taxes on income 22,000
Net income $33,000
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 2011 was as follows:
Assets:
Cash $165,000
Accounts receivable 220,000
Inventory 385,000
Total current assets 770,000
Property, plant, and equipment 440,000
Less accumulated depreciation (110,000)
Total Assets $1,100,000
Liabilities and owner's equity:
Accounts payable $66,000
Common stock 550,000
Retained earnings 484,000
Total liabilities and owners' equity $1,100,000
Additional information:
1. Sales and variable costs of sales are expected to increase by 10 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. Fifty 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 2 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 2012.
Required
a. Prepare a budgeted income statement for the first quarter of 2012.
b. Prepare a cash budget for the first quarter of 2012.
c. Prepare a budgeted balance sheet as of the end of the first quarter of 2012.