Prepare Budgeted Financial Statements
The following information is available for year 1 for Dancer Components:
Revenues (300,000 units) $5,700,000
Manufacturing costs
Materials 336,000
Variable cash costs 284,800
Fixed cash costs 655,200
Depreciation (fixed) 1,998,000
Marketing and administrative costs
Marketing (variable, cash) 844,800
Marketing depreciation 299,200
Administrative (fixed, cash) 1,018,400
Administrative depreciation 149,600
Total costs 5,586,000
Operating profits $114,000
All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 18 percent, but prices are expected to fall by 5 percent. Material costs per unit are expected to decrease by 8 percent. Other unit variable manufacturing costs are expected to decrease by 2 percent per unit. Fixed manufacturing costs are expected to increase by 5 percent.
Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Dancer operates on a cash basis.
Required
Prepare a budgeted income statement for year 2.
So far I have this:
Take 5,700,000 / 300,000 comes to $19 per unit
If sales volume is supposed to increase by 18% ; 300,000 * 1.18 = 354,000
354,000 * $19 per unit = $6,726,000
Since the prices are expected to fall 5% ; $19 per unit * 5% = .95 ; $19 - .95 = $18.05
To figure out the new revenues ; 354,000 * $18.05 = 6,389,700 revenue for year 2
When I try to figure out the next set of steps, I get this:
Material costs per unit are expected to decrease by 8%
336,000 / 300,000 = $1.12 material cost per unit
1.12 * .08 = .09 per unit (decrease current material per unit by 8%)
354,000 * .09 = $31,860.00
Unit variable manufacturing costs per unit expected to decrease 2%
284,800 / 300,000 = .95 variable manufacturing cost per unit currently
.95 * .02 = .02
354,000 * .02 = $7,080
However, I don't think that's right. It doesn't look right to me. Can someone please help me and explain to me what I am doing wrong? Perhaps explain to me the rest of the problem as well, because I feel like I am missing a step that will throw off the rest of my answers.