Fortune, Inc., is preparing its master budget for the first quarter. The company sells a single product at a price of $25 per unit. Sales (in units) are forecasted at 45,000 for January, 55,000 for February, and 50,000 for March. Cost of goods sold is $14 per unit. Other expense information for the first quarter follows.

Exercise 22-18 Merchandising: Budgeted income statement LO P2

Fortune, Inc., is preparing its master budget for the first quarter. The company sells a single product at a price of $25 per unit. Sales (in units) are forecasted at 45,000 for January, 55,000 for February, and 50,000 for March. Cost of goods sold is $14 per unit. Other expense information for the first quarter follows.

 

Commissions		8	%	of sales
Rent	$	14,000		per month
Advertising		15	%	of sales
Office salaries	$	75,000		per month
Depreciation	$	40,000		per month
Interest		15	%	annually on a $250,000 note payable
Tax rate		30	%

 

Prepare a budgeted income statement for this first quarter. Explanation: Commissions expense (8% of sales) = $300,000 Rent expense ($14,000 × 3) = $42,000 Advertising expense (15% of sales) = $562,500 Office salaries expense ($75,000 × 3) = $225,000 Depreciation expense ($40,000 × 3) = $120,000 Interest expense ($250,000 × 15% × 3/12) = $9,375      Supporting calculations   Sales       Unit sales (45,000 + 55,000 + 50,000)   150,000     Unit price $ 25        Sales dollars $ 3,750,000          Cost of goods sold       Unit sales (45,000 + 55,000 + 50,000)   150,000     Unit price $ 14        Cost of goods sold $ 2,100,000          Income tax expense     Pre-tax income $  391,125     Tax rate   30 %        Income tax expense $  117,338