Budgeting for Cramer Company -
(1) Cramer Company prepared the budgeted income statement for the first quarter 2017 as below:
|
Information
|
Amount
|
|
Sales Revenue
|
120,000
|
|
Less: Cost of Goods sold
|
50,000
|
|
Gross Profit
|
70,000
|
|
Selling & Administration Expenses
|
15,000
|
|
Operating income
|
55,000
|
|
Income Tax expense (30% of operating income)
|
16,500
|
|
Net Income
|
38,500
|
Cramer wants to estimate the net income for the subsequent three quarters (second quarter, third uarter and fourth quarter). Following information is available for estimations:
(a) Sales is expected to increase 20% in second quarter & 25% in third quarter and 30% in fourth quarter
(b) Cost of goods sold is expected to be 70% of respective quarter's Sales value (in $)
(c) Selling & Administration expenses are expected to be $ 15,000 for first quarter. For subsequent quarters, it is going to be $ 15,000 + 12% of sales revenue ($) of respective quarter)
(d) Income tax is 30% of operating income. The tax rate will remain the same for the whole year.
(2) Estimations concerning Product M of Cramer Company
Cramer manufactures various products and one of its products is M. The estimates concerning its sales, selling price and inventory are as given below:
|
Information
|
April
|
May
|
June
|
July
|
|
Sales (Units)
|
1,500
|
1,750
|
2,000
|
2,000
|
|
Selling price per unit ($)
|
$ 175
|
$ 175
|
$ 200
|
$ 200
|
|
Beginning Inventory
|
200 units
|
|
|
|
|
Closing Inventory
|
10% of next month's sales
|
(3) Cramer is operating nationally and internationally. The operating income and total assets of these divisions (domestic and international) are furnished below:
|
Information
|
Domestic ($)
|
International ($)
|
|
Operating income ($)
|
7,500
|
12,500
|
|
Average Total Assets ($)
|
22,500
|
50,000
|
Required -
(1) Estimate the operating income of Cramer Company for the next three quarters (i.e. second, third and fourth quarters of 2017) based on the information given above.
(2) Prepare Sales and Production Budget for Cramer Company for Product M for Second quarter (April, May and June)
(3) Determine Return on Investment (ROI) for both the divisions and comment on their performance.