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Dalley Inc. has the following information for its first year of operations: Revenues (200,000 units) $ 2,900,000 Manufacturing costs: Materials $ 168,000 Variable cash...

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Accounting

Dalley Inc. has the following information for its first year ofoperations:

Revenues (200,000 units)

$

2,900,000

Manufacturing costs:

Materials

$

168,000

Variable cash costs

142,400

Fixed cash costs

327,600

Depreciation (fixed)

999,000

Marketing (variable)

422,400

Marketing depreciation

149,600

Administrative (fixed)

509,200

Administrative depreciation

74,800

Total costs

$

2,793,000

Operating profits

$

107,000

All depreciation charges are fixed and are expected to remainthe same for year 2. Sales volume is expected to increase by 15%,but sales prices are expected to fall by 5%. Material costs perunit are expected to decrease by 6%. Other unit variablemanufacturing costs are expected to decrease by 2% per unit. Fixedmanufacturing costs (other than depreciation) are expected toincrease by 5%.

Variable marketing costs per unit will remain constant.Administrative costs (other than depreciation) are expected toincrease by 10%.

Assume there are no inventories. Dalley operates on a cashbasis.

Required:

Prepare a budgeted income statement for year 2.

Answer & Explanation Solved by verified expert
3.7 Ratings (692 Votes)

Income Statement for Dalley Inc.
Budgeted for next year Current given in question
Particulars No. of units Per Unit Total No. of units Per Unit Total
Revenue       2,30,000 13.775       31,68,250       2,00,000 14.5       29,00,000
Manufacturing Costs :
Materials       2,30,000 0.7896         1,81,608       2,00,000 0.84         1,68,000
Variable Cash Costs       2,30,000 0.6978         1,60,485       2,00,000 0.712         1,42,400
Fixed Cash Costs         3,43,980         3,27,600
Depreciation (Fixed)         9,99,000         9,99,000
Marketing (Variable)       2,30,000 2.112         4,85,760       2,00,000 2.112         4,22,400
Marketing Depreciation         1,49,600         1,49,600
Administrative (Fixed)         5,60,120         5,09,200
Administrative Depreciation             74,800            74,800
Total Costs       29,55,353       27,93,000
Operating Profits         2,12,897         1,07,000
Note : Current given income statement has been used above for calculation purposes.
Example : Materials cost in current year per unit = 0.84
Hence Material costs in budgeted year = 0.84*94% = 0.7896 (as they are expected to decrease by 6%)

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