Below summarizes a historical income statement performance for Company XYZ. Utilizing the historical information provided and the assumptions outlined below, prepare a budget for the upcoming fiscal year and a projection for the following year. In other words, you should have budgets for two years.

		Prior Year 1 Actual		Prior Year 2 Actual		Budget Year 1	Budget Year 2
Revenue
Sales		$ 2,000,000		$ 2,135,000
Other Operating Revenue		175,000		166,000
Total Revenue		2,175,000		2,301,000
Operating Expenses
Salaries		750,000		772,500
Fringe Benefits		187,500		193,125
Supplies		37,500		38,438
Utilities		55,000		56,650
Insurance		125,000		125,000
Depreciation		200,000		210,000
Other Operating Expense		275,000		280,500
Total Operating Expenses		1,630,000		1,676,213
Operating Income		545,000		624,788
Interest		185,000		190,000
Earning before Taxes		360,000		434,788
Income Tax (@30%)		108,000		130,436
Net Income		$ 252,000		$ 304,351
Operating Margin		25.1%		27.2%
Net Income %		11.6%		13.2%

Additional Historical Information

Total number of FTEs (full-time equivalent employees) were 14.4.

The Board of Directors approves salary increases each year.

Fringe benefits have not increased over the past few years; however, information suggests that this is not a trend that will continue.

Total net fixed assets for the organization were $2,500,000 in prior year 1 and $2,600,000 in prior year 2.

Assumptions for Budget Year 1

Management has requested an increase in FTEs of 2.5.

Salary increases will be given at 2.5%.

Fringe benefits as a % of total salaries are anticipated to increase 2%.

Inflation for all non-salary expenses is projected to be 2.5%.

Capital purchases for the budget year are projected to be $300,000.

Sales are projected to increase 2.5%.

Other operating revenue is projected to increase $25,000.

Assumptions for Budget Year 2

Management has requested an increase in FTEs of 1.5.

Salary increases will be given at 1.5%.

Fringe benefits as a % of total salaries are anticipated to increase 1%.

Inflation for all non-salary expenses is projected to be 1.5%.

Capital purchases for the budget year are projected to be $150,000.

Sales are projected to increase 3%.

Other operating revenue is projected to increase $25,000.