The results of operations for the Jackson Manufacturing Company for the fourth quarter of 2010 were as follows: Sales $600,000 Less variable cost of sales 240,000 Contribution margin 360,000 Less fixed production costs $ 65,000 Less fixed selling and administrative expenses 105,000 170,000 Income before taxes 190,000 Less taxes on income 76,000 Net income $114,000 Note: Jackson 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 2010 was as follows: Cash $200,000 Accounts receivable 120,000 Inventory 400,000 Total current assets 720,000 Property, plant, and equipment 200,000 Less accumulated depreciation (100,000) Total assets $820,000 Accounts payable $ 12,000 Common stock 600,000 Retained earnings 208,000 Total liabilities and stockholders' equity $820,000 Additional information: 1. Sales and variable costs of sales are expected to increase by 10 percent in the next quarter. 2. All sales are on credit with 80 percent collected in the quarter of sale and 20 percent collected in the following quarter. 3. Variable cost of sales consists of 50 percent materials, 30 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit: 90 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 $10,000 of depreciation) are expected to increase by 5 percent. Fixed production costs requiring payment are paid in the quarter they are incurred. 5. Fixed selling and administrative costs (other than $5,000 of depreciation expense) are expected to increase by 5 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred. 6. The tax rate is expected to be 40 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 2011. Required a. Prepare a budgeted income statement for the first quarter of 2011. b. Prepare a budgeted statement of cash receipts and disbursements for the first quarter of 2011. c. Prepare a budgeted balance sheet as of the end of the first quarter of 2011. Answer: a. Jackson Manufacturing Company Budgeted Income Statement For the Quarter Ended March 31, 2011 Sales $660,000 10% increase over prior quarter Less variable cost of sales 264,000 10% increase over prior quarter Contribution margin 396,000 Less fixed production costs $ 67,750 $10,000 + 1.05 ($65,000 − $10,000) Less fixed selling and adm. 110,000 $177,750 $5,000 + 1.05 ($105,000 − $5,000) Income before taxes $218,250 Less taxes on income 87,300 40% of income before taxes Net income $130,950 b. Jackson Manufacturing Company Budgeted Statement of Cash Receipts and Disbursements For the Quarter Ended March 31, 2011 Cash collected from sales: $120,000 + .8 ($660,000)a $648,000 Cash payments: Payment of material ($12,000 + 0.9 × $132,000)b 130,800 Payment for laborc 79,200 Payment for variable overheadd 52,800 Payment for fixed production costs ($67,750 − $10,000 depreciation) 57,750 Payment for fixed selling and administrative expenses ($110,000 − $5,000 depreciation) $105,000 Payment of income taxes 87,300 Total cash payments 512,850 Plus beginning cash balance $200,000 Ending cash balance $335,150 a 20% of prior quarter sales collected in next quarter (0.2 × $600,000 = $120,000) b Material used in prior quarter (0.5 × $240,000) = $120,000 10% paid in next quarter $12,000 Material used in current quarter (0.5 × $264,000 = $132,000 c Direct labor used (0.3 × $264,000) = $79,200 d Variable overhead incurred (0.2 × $264,000) = $52,800 c. Jackson Manufacturing Company Budgeted Balance Sheet As of March 31, 2011 Assets: Cash $335,150 Accounts receivable 132,000 (0.2 × $660,000) Inventory 400,000 Total current assets 867,150 Property, plant, and equipment 200,000 Less accumulated depreciation (115,000) ($100,000 + $10,000 + $5,000) Total assets $952,150 Liabilities and stockholders' equity: Accounts payable $ 13,200 (0.1 × $132,000) Common stock 600,000 Retained earnings 338,950 ($208,000 + $130,950) Total liabilities and stockholders' equity $952,150

The results of operations for the Jackson Manufacturing Company for the fourth quarter of 2010 were as follows: Sales $600,000 Less variable cost of sales 240,000 Contribution margin 360,000 Less fixed production costs $ 65,000 Less fixed selling and administrative expenses 105,000 170,000 Income before taxes 190,000 Less taxes on income 76,000 Net income $114,000 Note: Jackson 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 2010 was as follows: Cash $200,000 Accounts receivable 120,000 Inventory 400,000 Total current assets 720,000 Property, plant, and equipment 200,000 Less accumulated depreciation (100,000) Total assets $820,000 Accounts payable $ 12,000 Common stock 600,000 Retained earnings 208,000 Total liabilities and stockholders' equity $820,000 Additional information: 1.   Sales and variable costs of sales are expected to increase by 10 percent in the next quarter. 2.   All sales are on credit with 80 percent collected in the quarter of sale and 20 percent collected in the following quarter. 3.   Variable cost of sales consists of 50 percent materials, 30 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit: 90 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 $10,000 of depreciation) are expected to increase by 5 percent. Fixed production costs requiring payment are paid in the quarter they are incurred. 5.   Fixed selling and administrative costs (other than $5,000 of depreciation expense) are expected to increase by 5 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred. 6.   The tax rate is expected to be 40 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 2011. Required a.   Prepare a budgeted income statement for the first quarter of 2011. b.   Prepare a budgeted statement of cash receipts and disbursements for the first quarter of 2011. c.   Prepare a budgeted balance sheet as of the end of the first quarter of 2011. Answer: a.   Jackson Manufacturing Company Budgeted Income Statement For the Quarter Ended March 31, 2011 Sales $660,000 10% increase over prior quarter Less variable cost of sales 264,000 10% increase over prior quarter Contribution margin 396,000 Less fixed production costs $ 67,750 $10,000 + 1.05 ($65,000 − $10,000) Less fixed selling and adm. 110,000 $177,750 $5,000 + 1.05 ($105,000 − $5,000) Income before taxes $218,250 Less taxes on income 87,300 40% of income before taxes Net income $130,950 b.   Jackson Manufacturing Company Budgeted Statement of Cash Receipts and Disbursements For the Quarter Ended March 31, 2011 Cash collected from sales: $120,000 + .8 ($660,000)a $648,000 Cash payments: Payment of material ($12,000 + 0.9 × $132,000)b 130,800 Payment for laborc 79,200 Payment for variable overheadd 52,800 Payment for fixed production costs ($67,750 − $10,000 depreciation) 57,750 Payment for fixed selling and administrative expenses ($110,000 − $5,000 depreciation) $105,000 Payment of income taxes 87,300 Total cash payments 512,850 Plus beginning cash balance $200,000 Ending cash balance $335,150 a 20% of prior quarter sales collected in next quarter (0.2 × $600,000 = $120,000) b Material used in prior quarter (0.5 × $240,000) = $120,000 10% paid in next quarter $12,000 Material used in current quarter (0.5 × $264,000 = $132,000 c Direct labor used (0.3 × $264,000) = $79,200 d Variable overhead incurred (0.2 × $264,000) = $52,800 c.   Jackson Manufacturing Company Budgeted Balance Sheet As of March 31, 2011 Assets: Cash $335,150 Accounts receivable 132,000 (0.2 × $660,000) Inventory 400,000 Total current assets 867,150 Property, plant, and equipment 200,000 Less accumulated depreciation (115,000) ($100,000 + $10,000 + $5,000) Total assets $952,150 Liabilities and stockholders' equity: Accounts payable $ 13,200 (0.1 × $132,000) Common stock 600,000 Retained earnings 338,950 ($208,000 + $130,950) Total liabilities and stockholders' equity $952,150