Question
United Mobile Corporation appeared to be experiencing a good year. First quarter sales were one-third ahead of last year and the sales department predicted that
United Mobile Corporation appeared to be experiencing a good year. First quarter sales were one-third ahead of last year and the sales department predicted that this rate would continue throughout the year. The controller asked Megan Casey, a summer accounting intern, to draft a forecast for the year and analyze the differences from last years results. She based the forecast on first quarter results plus the expected production costs for the remainder of the year. She worked with production, sales, and other department heads to get the necessary information. The results of these efforts follow:
UNITED MOBILE CORPORATION Expected Account Balances for December 31, Year 2 | ||
Cash | $5,280 | |
Accounts Receivable | 352,000 | |
Inventory (January 1, year two) | 211,200 | |
Plant and Equipment | 572,000 | |
Accumulated Depreciation | $180,400 | |
Accounts Payable | 198,000 | |
Notes Payable (due within one year) | 220,000 | |
Accrued Payables | 102,300 | |
Common Stock | 308,000 | |
Retained Earnings | 476,080 | |
Sales Revenue | 2,640,000 | |
Other Income | 39,600 | |
Manufacturing Costs | ||
Materials | 937,200 | |
Direct Labor | 959,200 | |
Variable Overhead | 572,000 | |
Depreciation | 22,000 | |
Other Fixed Overhead | 34,100 | |
Marketing | ||
Commissions | 88,000 | |
Salaries | 70,400 | |
Promotion and Advertising | 198,000 | |
Administrative | ||
Salaries | 70,400 | |
Travel | 11,000 | |
Office Costs | 39,600 | |
Income Taxes |
| |
Dividends | 22,000 |
|
$4,164,380 | $4,164,380 |
Adjustments for the change in inventory and for income taxes have not been made. The scheduled production for this year is 495,000 units and planned sales volume is 440,000 units. Sales and production volume was 330,000 units last year. The company uses a full-absorption costing and FIFO inventory system and is subject to a 40 percent income tax rate. The actual income statement for last year follows:
UNITED MOBILE CORPORATION Statement of Income and Retained Earnings For the Budget Year Ended December 31, Year 1 | |||
Revenues | |||
Sales Revenue | $1,980,000 | ||
Other Income | 66,000 |
$1,860,000 | |
Expenses | |||
Cost of Goods Sold | |||
Materials | $ 580,800 | ||
Direct Labor | 594,000 | ||
Variable Overhead | 356,400 | ||
Fixed Overhead | 52,800 | ||
$1,584,000 | |||
Beginning Inventory | 211,200 | ||
$1,795,200 | |||
Ending Inventory | 211,200 |
$1,584,000 | |
Selling | |||
Salaries | $ 59,400 | ||
Commissions | 66,000 | ||
Promotion and Advertising | 138,600 |
264,000 | |
General and Administrative | |||
Salaries | $ 61,600 | ||
Travel | 8,800 | ||
Office Costs | 35,200 |
105,600 | |
Income Taxes | 36,960 |
1,990,560 | |
Operating Profit | 55,440 | ||
Beginning Retained Earnings | 442,640 | ||
Subtotal | $ 498,080 | ||
Less Dividends | 22,000 | ||
Ending Retained Earnings | $ 476,080 |
Complete the following:
Prepared a budgeted income statement and balance sheet.
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