Question

Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company’s controller, Will Fulton, has just received the sales forecast for the coming year for CTC’s three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20x2 follows:

	Weeders			Hedge Clippers			Leaf Blowers
Unit sales		50,000			50,000			100,000
Unit selling price	$	28		$	36		$	48
Variable manufacturing cost per unit		13			12			25
Variable selling cost per unit		5			4			6

For 20x2, CTC’s fixed manufacturing overhead is budgeted at $2,000,000, and the company’s fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent.

Problem 7-49 Part 1

Required:

Determine CTC’s budgeted net income for 20x2.

Answer 1

		Weeders	Hedge Clippers	Leaf Blowers	Total
A	Units	50000	50000	100000
B	Sales Price	28.00	36.00	48.00
C	Manufacturing Cost	13.00	12.00	25.00
D	Selling Cost	5.00	4.00	6.00
		Weeders	Hedge Clippers	Leaf Blowers	Total
A*B	Sales Value	1400000	1800000	4800000	8000000
	Less: Variable Costs
A*C	Manufacturing Cost	650000	600000	2500000	3750000
A*D	Selling Cost	250000	200000	600000	1050000
	Contribution Margin	500000	1000000	1700000	3200000
	Less: Fixed Costs:
	Manufacturing OH				2000000
	S&A Expense				600000
	Income Before Tax				600000
	Less: Taxes @ 40%				240000
	Income After Tax				360000