Problem 9-42 Preparation of Master Budget (LO 9-3, 9-4, 9-5)

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[The following information applies to the questions displayed below.] FreshPak Corporation manufactures two types of cardboard boxes used in shipping canned food, fruit, and vegetables. The canned food box (type C) and the perishable food box (type P) have the following material and labor requirements.

		Type of Box
	C				P
Direct material required per 100 boxes:
Paperboard ($0.32 per pound)		35	pounds			75	pounds
Corrugating medium ($0.16 per pound)		25	pounds			35	pounds
Direct labor required per 100 boxes ($16.00 per hour)		0.20	hour			0.40	hour

The following production-overhead costs are anticipated for the next year. The predetermined overhead rate is based on a production volume of 480,000 units for each type of box. Production overhead is applied on the basis of direct-labor hours.

Indirect material	$	14,550
Indirect labor		81,530
Utilities		49,500
Property taxes		33,000
Insurance		26,000
Depreciation		57,500
Total	$	262,080

The following selling and administrative expenses are anticipated for the next year.

Salaries and fringe benefits of sales personnel	$	139,500
Advertising		31,500
Management salaries and fringe benefits		153,000
Clerical wages and fringe benefits		48,000
Miscellaneous administrative expenses		7,800
Total	$	379,800

The sales forecast for the next year is as follows:

	Sales Volume				Sales Price
Box type C		485,000	boxes		$	125.00	per hundred boxes
Box type P		485,000	boxes			185.00	per hundred boxes

The following inventory information is available for the next year. The unit production costs for each product are expected to be the same this year and next year.

	Expected Inventory January 1			Desired Ending Inventory December 31
Finished goods:
Box type C	17,500	boxes		12,500	boxes
Box type P	27,500	boxes		22,500	boxes
Raw material:
Paperboard	17,000	pounds		7,000	pounds
Corrugating medium	8,000	pounds		13,000	pounds

Prepare a master budget for FreshPak Corporation for the next year. Assume an income tax rate of 40 percent.

Problem 9-42 Part 7

7. Prepare the budgeted income statement for the next year. (Do not round intermediate calculations.)

Sales revenue	$1,503,500
Less: Cost of goods sold
Gross margin
Selling and administrative expenses
Income before taxes
Income tax expense
Net income