Question E22-32: Budgeted Income Statement

Quality Wool Company, a merchandising company, is developing its master budget for next year. The income statement for the current year is as follows:

QUALITY WOOL COMPANY Income Statement For Year Ending December 31
Gross Sales	$1,200,000
Less Uncollectible Accounts	$(26,000)
Collected Sales	$1,174,000
Cost of Goods Sold	$(780,000)
Profit before Operating Expenses	$394,000
Operating Expenses (including $15,000 depreciation)	$(206,000)
Income before Tax	$188,000

The following are managements goals and forecasts for next year:

1. Selling prices will increase by 3%, and sales volume will increase by 5%.
2. The cost of merchandise will increase by 2%.
3. All operating expenses are fixed. Price increases for operating expenses will be 4%. The company uses straight-line depreciation.
4. The estimated uncollectibles are 2% of budgeted sales.

Prepare a budgeted functional income statement for next year.