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The following table summarizes historical income statement performance for Company XYZ. Utilizing the historical information provided and the assumptions outlined below, prepare a budget for

The following table summarizes 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.

Company XYZ Historical Income Statement
Prior Year 1 Actual Prior Year 2 Actual
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 Expenses 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 was 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

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