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Part 2 - Top-Down Operating Budget An entity expects its sales to be $6,000,000 next year. The past year's income statement is as set out below. Using a top-down percentage of sales approach forecast the income statement for next year and answer the questions below. Fixed costs are expected to increase as the sales volumes increase Actual Last Year Sales Direct Material Costs Direct Labour Cost Variable Factory Overhead Fixed Factory Overhead Costs of Goods Sold Gross Profit Corporate Fixed Costs Operating Profit Taxes Net Income Income Statement 5,000,000 (1,000,000) (1,250,000) (750,000) (1,000,000) (4,000,000) 1,000,000 (750,000) 250,000 (50,000) 200,000 100.0% -20.0% -25.0% -15.0% -20.0% -80.0% 20.0% - 15.0% 5.0% -1.0% 4.0% Questions (show your calculations where applicable) 1. Prepare an income statement forecast for the next year at $6,000,000 of sales. This is considered a static budget for next year. 2. If the entity instead used a flexible budget approach and actual sales were $6,500,000, prepare a budget for next year. 3. If actual Director Labour Cost for next year is $1,625,000, what amount would the Human Resources Department have to explain under a: a. Static Budget b. Flexible Budget 4. Sales each month under the static budget are $500,000. These sales are collected 50% in month 1 of the sale and 50% in month 2 after the sale. Monthly operating expenses are $400,000 a month and paid in the month incurred. Describe the cash flow consequences of these timing differences. 5. What type of responsibility center is the Human Resources Department

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