Task: Master Budget
The results of operations for the Preston Manufacturing Company for the fourth quarter of 2007 were as follows (in thousands):
Sales $590,000
Less variable cost of sales 354,000
Contribution margin 236,000
Less fixed production costs $118,000
Less fixed selling and administrative expenses 59,000 177,000
Income before taxes 59,000
Less taxes on income 23,600
Net income $35,400
Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of goods sold. Fixed production costs are charged to expense in the period incurred.
The company's balance sheet as of the end of the fourth quarter of 2007 was as follows (in thousands):
Assets:
Cash $150,000
Accounts receivable 295,000
Inventory 370,000
Total current assets 815,000
Property, plant and equipment 450,000
Less accumulated depreciation 110,000
Total assets $1,155,000
Liabilities and owners' equity:
Accounts payable $56,640
Common stock 500,000
Retained earnings
598,360
Total liabilities and owners' equity
$1,155,000
Additional information:
1. Sales and variable costs of sales are expected to increase by 6 percent in the next quarter.
2. All sales are on credit with 50 percent collected in the quarter of sale and 50 percent collected in the following quarter.
3. Variable cost of sales consists of 40 percent materials, 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit, and 60 percent are paid for in the quarter of purchase and the remaining amount is paid for in the quarter after purchase. The inventory balance is not expected to change. Also, direct labor and variable overhead are paid in the quarter the expenses are incurred.
4. Fixed production costs (other than $8,000 of depreciation) are expected to increase by two percent. Fixed production costs requiring payment are paid in the quarter they are incurred.
5. Fixed selling and administrative costs (other than $7,000 of depreciation expense) are expected to increase by two percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred.
6. The tax rate is expected to be 45 percent. All taxes are paid in the quarter they are incurred.
7. No purchases of property, plant, or equipment are expected in the first quarter of 2008.
Required to do:
a. Prepare a budgeted income statement for the first quarter of 2008. (List multiple entries in descending order of amount.)
b. Prepare a budgeted statement of cash receipts and disbursements for the first quarter. (List multiple entries in descending order of amount.)
c. Prepare a budgeted balance sheet as of the end of the first quarter of 2008. (List assets in order of liquidity, liabilities and owners' equity with liabilities first followed by owners' equity. Round all answers to 0 decimal places. Note: Balance sheet may be off due to rounding.)