Question

Q9. WE Company has completed all operating budgets other than the income statement for 2024. Selected data from these budgets follow.

Sales: $350,000
Purchases of raw materials: $145,000
Ending inventory of raw materials: $15,000
Direct labor: $40,000; Manufacturing overhead: $73,000, including $3,000 of depreciation expense
Selling and administrative expenses: $36,000 including depreciation expense of $1,000; Interest expense: $1,000
Principal payment on note: $2,000; Dividends declared: $2,000 and Income tax rate: 30%
Other information:
Assume that the number of units produced equals the number sold.
Year-end accounts receivable: 4% of 2024 sales.
Year-end accounts payable: 50% of ending inventory of raw materials.
Interest, direct labor, manufacturing overhead, and selling and administrative expenses other than depreciation are paid as incurred.
Dividends declared and income taxes for 2014 will not be paid until 2015.

Instructions
(a) Calculate budgeted cost of goods sold.
(b) Prepare a budgeted income statement for the year ending December 31, 2014.
(c) Prepare a budgeted balance sheet as of December 31, 2014

Answer 1

(a) To calculate the budgeted cost of goods sold, we need to use the following formula:

Beginning Inventory of Raw Materials + Purchases of Raw Materials - Ending Inventory of Raw Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing Costs

$0 (assuming no beginning inventory of raw materials) + $145,000 - $15,000 + $40,000 + $73,000 = $243,000

Then, we can use the following formula to calculate the budgeted cost of goods sold:

Total Manufacturing Costs + Beginning Finished Goods Inventory - Ending Finished Goods Inventory = Cost of Goods Sold

$243,000 + $0 - $0 = $243,000

Therefore, the budgeted cost of goods sold is $243,000.

(b) Using the information above, we can prepare a budgeted income statement for the year ending December 31, 2014 as follows:

WE Company

Budgeted Income Statement

For the Year Ending December 31, 2014

Sales $350,000

Cost of Goods Sold $243,000

Gross Profit $107,000

Selling and Administrative Expenses $36,000

Depreciation $1,000

Interest Expense $1,000

Income before Taxes $69,000

Income Tax Expense $20,700

Net Income $48,300

(c) Using the information above, we can prepare a budgeted balance sheet as of December 31, 2014 as follows:

WE Company

Budgeted Balance Sheet

As of December 31, 2014

Assets

Cash TBD

Accounts Receivable TBD

Inventory of Raw Materials $15,000

Finished Goods Inventory TBD

Total Assets TBD

Liabilities and Stockholders' Equity

Accounts Payable TBD

Note Payable TBD

Stockholders' Equity TBD

Total Liabilities and Stockholders' Equity TBD

To complete the budgeted balance sheet, we need additional information such as the amount of cash, accounts receivable, finished goods inventory, note payable, and stockholders' equity.