E 15. Delft House, Inc., a multinational company based in Amsterdam, organizes and coordinates art shows and auctions throughout the world. Its budgeted and actual costs for last year are as follows:

Budgeted Cost Actual Cost Salaries expense, staging € 480,000 € 512,800 Salaries expense, executive 380,000 447,200 Travel costs 640,000 652,020 Auctioneer services 540,000 449,820 Space rental costs 251,000 246,580 Printing costs 192,000 182,500 Advertising expense 169,000 183,280 Insurance, merchandise 84,800 77,300 Insurance, liability 64,000 67,100 Home office costs 209,200 219,880 Shipping costs 105,000 112,560 Miscellaneous 25,000 25,828 Total operating expenses €3,140,000 €3,176,868 Net receipts €6,200,000 €6,369,200 Delft House, Inc., has budgeted the following fixed costs for the coming year: executive salaries, €440,000; advertising expense, €190,000; merchandise insurance, €80,000; and liability insurance, €68,000. Additional information pertaining to the operations of Delft House, Inc., in the coming years is as follows:

a. Net receipts are estimated at €6,400,000.

b. Salaries expense for staging will increase 20 percent over the actual figures for the last year.

c. Travel costs are expected to be 11 percent of net receipts.

d. Auctioneer services will be billed at 9.5 percent of net receipts.

e. Space rental costs will be 20 percent higher than the amount budgeted in the last year.

f. Printing costs are expected to be €190,000.
g. Home office costs are budgeted for €230,000.
h. Shipping costs are expected to be 20 percent higher than the amount budgeted in the last year.
i. Miscellaneous expenses for the coming year will be budgeted at €28,000.
Because the company sells only services, it has expenses only and no cost of sales.
(Net receipts equal gross margin.)
1. Using a 40 percent income tax rate, prepare the company’s budgeted income statement for the coming year.
2. Should the budget committee be worried about the trend in the company’s operations? Explain your answer.
Problems Preparing Operating Budgets