Following information relates to Acco Co. a. Beginning cash balance on July 1: $40,000. b. Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,376,000; June (actual), $960,000; and July (budgeted), $1,120,000.

Following information relates to Acco Co.

 

a.	Beginning cash balance on July 1: $40,000.
b.	Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,376,000; June (actual), $960,000; and July (budgeted), $1,120,000.
c.	Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), $344,000; and July (budgeted), $600,000.
d.	Budgeted cash disbursements for salaries in July: $168,800.
e.	Budgeted depreciation expense for July: $9,600.
f.	Other cash expenses budgeted for July: $120,000.
g.	Accrued income taxes due in July: $80,000 (related to June).
h.	Bank loan interest paid July 31: $5,280.

 

Additional Information:
a.	Cost of goods sold is 44% of sales.
b.	Inventory at the end of June is $64,000 and at the end of July is $171,200.
c.	Salaries payable on June 30 are $40,000 and are expected to be $32,000 on July 31.
d.	The equipment account balance is $1,280,000 on July 31. On June 30, the accumulated depreciation on equipment is $224,000.
e.	The $5,280 cash payment of interest represents the 1% monthly expense on a bank loan of $528,000.
f.	Income taxes payable on July 31 are $99,456, and the income tax rate applicable to the company is 30%.
g.	The only other balance sheet accounts are: Common Stock, with a balance of $464,000 on June 30; and Retained Earnings, with a balance of $857,600 on June 30.

 

Prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

 

Explanation:

Budgeted Income Statement supporting calculations

Cost of goods sold

Sales	$	1,120,000
Cost percent		44	%
Cost of goods sold	$	492,800

 

Salaries expense

Cash paid	$	168,800
Less beginning payable		(40,000)
Plus ending payable		32,000
Salaries expense	$	160,800

  

Income tax expense

Pre-tax income	$	331,520
Tax rate		30	%
Income tax expense	$	99,456

 

Budgeted Balance Sheet supporting calculations

Cash receipts in July from sales

 

From May sales ($1,376,000 × 20%)	$	275,200
From June sales ($960,000 × 50%)		480,000
From July sales ($1,120,000 × 30%)		336,000
Total	$	1,091,200

 

Cash disbursements in July for merchandise

For June purchases ($344,000 × 40%)	$	137,600
For July purchases ($600,000 × 60%)		360,000
Total	$	497,600

Accounts receivable

June sales (20% × $960,000)	$	192,000
July sales (70% × $1,120,000)		784,000
Total	$	976,000

Accumulated depreciation

Beginning	$	224,000
Depreciation expense(July)		9,600
Ending	$	233,600

 

Accounts payable

Purchases	$	600,000
Percent unpaid		40	%
Payable	$	240,000

 

Retained earnings

Beginning	$	857,600
Net income		232,064
Ending	$	1,089,664

Alden Company has decided to use a contribution format income statement for internal planning purposes. The company has analyzed its expenses and has developed the following cost formulas:

Alden Company has decided to use a contribution format income statement for internal planning purposes. The company has analyzed its expenses and has developed the following cost formulas:

Cost	Cost Formula
Cost of goods sold	$27 per unit sold
Advertising expense	$184,000 per quarter
Sales commissions	7% of sales
Administrative salaries	$94,000 per quarter
Shipping expense	?
Depreciation expense	$64,000 per quarter

Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements. Units sold and the related shipping expense over the last eight quarters are given below:

Quarter	Units Sold	Shipping Expense
Year 1:
First	30,000	$174,000
Second	32,000	$189,000
Third	37,000	$231,000
Fourth	33,000	$194,000
Year 2:
First	31,000	$184,000
Second	34,000	$199,000
Third	44,400	$246,000
Fourth	41,400	$222,000

Management would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter.

Required:
1.	Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above. (Omit the "$" sign in your response.)

Y = $ + $ X

2.

In the first quarter of Year 3, the company plans to sell 37,000 units at a selling price of $55 per unit. Prepare a contribution format income statement for the quarter. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Alden Company Budgeted Income Statement For the First Quarter of Year 3
Sales		$
Variable expenses:
Cost of goods sold	$
Shipping expense
Sales commissions
Total variable expenses
Contribution margin
Fixed expenses:
Shipping expense
Advertising expense
Administrative salaries
Depreciation expense
Total fixed expenses
Net operating income		$

Explanation: 1.
High-low method:

	Units Sold		Shipping Expense
High activity level	44,400		$	246,000
Low activity level	30,000			174,000
Change	14,400		$	72,000

Variable cost per unit	=	Change in cost
		Change in activity

	=	$72,000	= $5 per unit
		14,400 units

Fixed cost element:

Total shipping expense at high activity level	$	246,000
Less variable element:     44,400 units × $5.00 per unit		222,000
Fixed cost element	$	24,000

Therefore, the cost formula is: Y = $24,000 + $5X.

2.

Sales: (37,000 units × $55 per unit) = $2,035,000

Cost of goods sold: (37,000 units × $27 per unit) = $999,000

Shipping expense: (37,000 units × $5 per unit) = $185,000

Sales commission: ($2,035,000 × .07) = $142,450