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 $180,000
Accounts receivable 220,000
Inventory
350,000
Total current assets 750,000
Property, plant and equipment 450,000
Less accumulated depreciation
(100,000)
Total assets
$1,100,000
Liabilities and owners’ equity:
Accounts payable $46,200
Common stock 450,000
Retained earnings
603,800
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 35 percent materials, 40 percent direct labor, and 25 percent variable overhead. Materials are purchased on credit. 60 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 are paid in the quarter the expenses are incurred.
4. Fixed production costs (other than $9,200 of depreciation) are expected to increase by 3 percent. Fixed production costs requiring payment are paid in the quarter they are incurred.
5. Fixed selling and administrative costs (other than $7,700 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.
Prepare a budgeted income statement for the first quarter of 2012. (Round your intermediate calculations to 0 decimal places and the final answers to the nearest dollar. List multiple entries from largest to smallest amounts, e.g. 10, 5, 2. Enter all amounts as positive amounts and subtract where necessary.)
$
Less:
Contribution margin $
Less: $
Less:
Income before taxes
Less:
Net income
$
Prepare a cash budget for the first quarter of 2012. (Round your intermediate calculations to 0 decimal places and the final answers to the nearest dollar. List multiple entries from largest to smallest amounts, e.g. 10, 5, 2. Enter all amounts as positive amounts and subtract where necessary.)
$
Cash payments:
$
$
Plus:
Ending cash balance
$
Prepare a budgeted balance sheet as of the end of the first quarter of 2012. (Round your intermediate calculations to 0 decimal places and the final answers to the nearest dollar. List assets in order of liquidity, liabilities and owners’ equity with liabilities first followed by owners’ equity. Enter all amounts as positive amounts and subtract where necessary.)
Assets:
$
Total current assets
Less
Total assets $
Liabilities and owners’ equity
$
Total liabilities and owners’ equity $