Budgeted Income Statement For the year ended December 31, 2015

Sales: 4,250,000

Costs of goods sold:

Direct material: 450,000

Manufacturing overhead variable: 352,000

Manufacturing overhead fixed: 130,000

Depreciation manufacturing: 140,000

Total costs of goods sold: 1,045,000

Gross Profit: 3,205,000

Expenses:

General & admin expenses variable: 175,000

General & admin expenses fixed: 475,000

Depreciation administrative: 35,000

Total expenses: 685,000

Net operating income: 2,250,000

The following assumptions have been made regarding the calendar year 2016.

- Sales volume is expected to increase by 10%.

- Prices are expected to increase by 4%

- Direct material costs per unit are expected to increase by 8%.

- Variable manufacturing overhead costs per unit are expected to decrease by 3%.

- Fixed manufacturing overhead costs are expected to decrease by 6%

- Variable general & administrative expenses per unit will remain constant.

- Fixed general & administrative expenses are expected to increase by 5%.

- All depreciation is a fixed cost. An existing machine used in manufacturing is to be replaced at the beginning of the year. The old machine had an annual depreciation expense of $15,000. The new machine will have an annual depreciation expense of $24,500.

(a) Prepare a budgeted income statement for the year ending December 31, 2016.

(b) Will Alpha Corporation be able to generate enough cash from operations to make a debt payment of $3,200,000 using only funds generated from 2016 operations?