Kramer Enterprises reports year-end information from 2010 as follows: Sales Volume 160.000 UNITS INCOME STATEMENT Sales 960.000 USD Cost of goods sold -640.000 USD Gross margin 320.000 USD Operating expenses Operating income -260.000 USD 60.000 USD Kramer is developing the 2011 budget. In 2011 the company would like to increase selling prices by 8%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost. a) Prepare a budgeted income statement of Kramer for 2011 filling the table below: (12 of 30 points) BUDGETED SALES VOLUME BUDGETED SALES PRICE BUDGETED UNIT VARIABLE COST ? UNITS ? USD ? USD BUDGETED INCOME STATEMENT Sales ? USD Cost of goods sold ? Gross margin ? Operating expenses ? Operating income ? b) With the given assumptions below, prepare a operating cash flow budget for the company in the table provided below: (15 of 30 points) i. ii. iii. iv. V. vi. vii. viii. Total receivables from customers is 160.000 USD as of the end of 2010. It takes 2 months in average to collect sales. This policy is not expected to change in 2011. The sales of 2011 are expected to be equally distributed throughout the year. There is no accounts payable as of the end of 2010. All purchases are made within the same month of sales. Payment for purchase are made within the same month of purchase. Operating expenses are paid within the same month of operating expense occurs. There is not any non-cash operating expenses. CASH COLLECTIONS FROM CUSTOMERS Collections from 2010 sales Collections from 2011 sales TOTAL CASH PAYMENTS; TO SUPPLIERS ? FOR OPERATING EXPENSES ? TOTAL ? NET CASH FLOW FROM OPERATIONS ? 31 c) Cash flow yield is the ratio of "net cash flow from operations" to "net operating income". If the result of the ratio is above 1, it means that company's ability to create cash from its operating activities is good. Calculate "cash flow yield" on the budgeted income statement of Kramer. If it is below 1 explain the reason. (3 of 30 points)