A - INCOME STATEMENT

1. Prepare a budgeted income statement through operating income by quarter and for the year using the contribution margin format--use the format provided on the template as a reference. Then add interest expense to your income statement to determine income before tax. Interest expense can be calculated from the information provided for the cash budget. (For purposes of this project, we will ignore income taxes.)

2. Using your budgeted income statement for the year, answer the following questions at the bottom of your income statement sheet. You should use operating income in your calculations, not income before tax. Label your answers, but make sure that your answers contain formulas incorporating cell references.

• What is the budgeted break-even point in units? (Round to the nearest whole unit)
• What is the margin of safety percentage at the budgeted activity level for the year? (Round to the nearest one percent)
• What is operating leverage at the budgeted activity level for the year? (Round to one decimal place)
• If Crossley wants to earn a $6,500,000 operating profit next year, how many units must the company sell? (Round to the nearest whole unit)

B - CASH BUDGET

Given the following additional information, prepare a cash budget by quarter and for the year using the format provided. The first quarter has been done for youyou should make sure that you understand where these amounts come from before attempting the remaining quarters.

ADDITIONAL INFORMATION:

• Historically, 65% of sales have been collected in the quarter of sale and 35% in the following quarter; uncollectible accounts have been insignificant. Accounts receivable at 1/1/19 is expected to total $3,069,360.

• Crossley pays for materials in the quarter after purchase and accounts payable at 1/1/19 is projected to be $2,600,000.

• Crossley pays all other variable product costs, including direct labor, in the quarter in which they are incurred.

• Fixed operating costs are paid in the quarter incurred; sales commissions are paid in the quarter following the sale, and commissions payable at 1/1/19 is estimated at $187,425.

• Beginning cash $1,625 ,000

• Crossley plans to pay quarterly dividends of $250,000

• Crossley is planning to purchase additional production equipment requiring a cash outlay of $1,950,000 at the beginning of the third quarter.

• Crossley has a $1,500,000 8% note outstanding on which it will make payments of $200,000 principal plus interest on the outstanding balance on June 30 and December 31.

C - BALANCE SHEET

NOTE: If you cannot get your balance sheet to balance, add a line item in the appropriate section titled Plug for the amount needed.

Presented on the template provided is Crossleys projected balance sheet at 12/31/18. Prepare a budgeted balance sheet at 12/31/19 next to it, then answer the following questions in the space below your balance sheets. Label your answers, but the amounts themselves should be calculated by formulas that include cell references:

• What is the budgeted return on investment (round your answer to the nearest one percent)?
• If the company has established a minimum required rate of return of 22% for Crossley, what is budgeted residual income (round your answer to the nearest dollar)?
• If the CEO of Crossley has set a target ROI of 28%, how many units would the company have to sell for the year (round your answer to the nearest whole unit)?
• 

Here are the numbers for the Operating Budgets:

CROSSLEY COMPANY INCOME STATEMENT YEAR ENDED DECEMBER 31, 2019 QTR 1 QTR 2 QTR 3 QTR 4 YEAR Sales revenue LESS: Variable costs Direct materials Direct labor Variable overhead Variable selling Total variable costs Contribution margin LESS: Fixed costs Fixed overhead-depreciation Fixed overhead-other Fixed selling-depreciation Fixed selling-other Fixed admin-depreciation Fixed admin-other Total fixed costs Operating income Interest expense Income before tax CROSSLEY COMPANY CASH BUDGET YEAR ENDED DECEMBER 31, 2019 QTR 1 Cash Receipts-operating: Current quarter Previous quarter Total cash collections 5569200 3069360 8638560 2600000 2347920 1565280 187425 524000 850000 980000 9054625 Cash payments-operating: Materials purchases Labor Variable overhead Variable sales commissions Fixed overhead Fixed selling Fixed admin Total operating payments Total cash provided/ used by operations Other payments/receipts: Capital expenditure Dividends Note payment (p&l) Total cash provided/used Add: beginning cash balance Ending cash balance -416065 -250000 -666065 1625000 958935 CROSSLEY COMPANY BALANCE SHEET AT DECEMBER 31 2019 2018 ASSETS 1625000 3069360 Cash Accounts receivable Inventory Raw materials Finished goods Property, plant and equipment, net Total Assets 275000 481600 756600 2939555 8390515 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable Commissions payable Note payable Common stock, no par Retained earnings Total Liabilities and Stockholders' Equity 2600000 187425 1500000 2450000 1653090 8390515 2018 SALES: 2019 SALES 2020 SALES SALES PRICE: 170000 204000 244800 $ 210 SALES BUDGET UNITS SALES PRICE Budgeted revenue QTR1 QTR 2 QTR3 QTR4 YR 40800 61200 71400 30600 204000 210 210 210 210 210 8568000 12852000 14994000 6426000 42840000 10% PRODUCTION BUDGET Budgeted sales +El required Total needs -Bl on hand Total production required 40800 6120 46920 3440 43480 61200 7140 68340 6120 62220 71400 3060 74460 7140 67320 30600 4896 35496 3060 32436 204000 4896 208896 3440 205456 Q1-2020 Q2-2020 48960 73440 7344 56304 4896 51408 51408 10 514080 15% MATERIALS PURCHASES BUDGET Budgeted production Std feet per unit Total feet for production +El required Total feet needed -BI Total feet to be purchased $5/ft Total cost of purchases 43480 10 434800 93330 528130 55000 473130 62220 10 622200 100980 723180 93330 629850 67320 10 673200 48654 721854 100980 620874 32436 205456 10 10 324360 2054560 77112 77112 401472 2131672 48654 55000 352818 2076672 2365650 3149250 3104370 1764090 10383360 DIRECT LABOR BUDGET Production Std hours per unit Total labor hours needed $9.00/DLH Total cost of direct labor 43480 62220 67320 32436 205456 6 6 6 6 6 260880 373320 403920 194616 1232736 999 2347920 3359880 3635280 1751544 11094624 OVERHEAD BUDGET: Total labor hours needed $6.00/DLH Total variable overhead Fixed overhead-depreciation Fixed overhead-other Total budgeted overhead 260880 373320 403920 194616 6 6 6 6 1565280 2239920 2423520 1167696 90000 90000 122500 122500 524000 524000 524000 524000 2179280 2853920 3070020 1814196 1232736 6 7396416 425000 2096000 9917416 3.50% SELLING & ADMIN BUDGET Variable selling-commissions Fixed selling Fixed admin Depreciation-selling Depreciation-admin Total budgeted selling & admin cost 299880 449820 524790 850000 850000 850000 980000 980000 980000 75000 75000 75000 120000 120000 120000 2324880 2474820 2549790 224910 1499400 850000 3400000 980000 3920000 75000 300000 120000 480000 2249910 9599400