Question

Gig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting process:

Budgeted unit sales		720
Selling price per unit	$	2,080
Cost per unit	$	1,380
Variable selling and administrative expense (per unit)	$	70
Fixed selling and administrative expense (per year)	$	400,000
Interest expense for the year	$	24,000

Required:

Prepare the company’s budgeted income statement for the year.

Answer 1

Ans: Budgeted income statement:

Sales revenue	$1,497,600
Cost of goods sold	$993,600
Gross profit	$504,000
Selling and administrative expense	$450,400
Operating income	$53,600
Interest expense	$24,000
Net income	$29,600

1.Sales revenue= Budgeted unit sales*selling price per unit

=720*2080

=$1,497,600

2.COGS = Budgeted unit sales*cost per unit

=720*1380

=$993,600

3 Gross profit = sales revenue-cogs

=1,497,600-993,600

=$504,000

4.Selling and administrative expense= variable S&A expense+ Fixed S&A expense

=(70*720)+400,000

=50,400+400,000

=$450,400

5. Operating income= Gross profit-Selling and administrative expense

=504,000-450,400

=$53,600

6. Net income= Operating income-interest expense

=53,600-24,000

=$29,600