Master Budget Preparation for Fortune, Inc. First Quarter
Budgeted Income Statement For Quarter Ended March 31
Sales $3,675,000
Cost of goods sold $1,764,000
Gross profit $1,911,000
Operating expenses:
Commissions expense $404,250
Rent expense $60,000
Advertising expense $441,000
Office salaries expense $222,000
Depreciation expense $147,000
Interest expense $7,425
Total operating expenses $1,281,675
Income before taxes $629,325
Income tax expense $251,730
Net income $377,595
Explanation:
Commissions: 11% of sales dollars
Rent: $ 20,000 per month
Advertising: 12% of sales dollars
Office salaries: $74,000 per month
Depreciation: $49,000 per month
Interest: 11% annually on a $270,000 note payable
Tax rate: 40%
Sales = Number of units for first quarter x price per unit = (39,000 + 59,000 + 49,000) x $25 = $3,675,000
Cost of goods = (39,000 + 59,000 + 49,000) x $12 = $1,764,000
Commissions expense = 11% of sales = 11% x $3,675,000 = $404,250
Advertising expense = 12% of sales = 12% x $3,675,000 = $441,000
Interest expense = 11% annually on a $270,000 = 11% x $270,000 x 3/12 = $7,425
Income = Gross profit - total operating expenses = $1,911,000 - $1,281,675 = $629,325
Income tax expenses = 40% x $629,325 = $251,730
Final Answer:
To generate a master budgeted income statement, calculate total revenue, cost of goods sold, and monthly expenses. Subtract these from gross sales to deliver net income for each month and accumulate these results for a quarterly overview.
Explanation:
The primary goal here is to prepare a master budgeted income statement, which includes understanding how to calculate revenue, costs, and expenses. In this scenario, we first calculate total sales for each month by multiplying the price per unit ($25) by the monthly forecasts. Then we calculate the cost of goods sold by multiplying the cost per unit ($12) by the forecasted units. Secondly, we consider the monthly expenses (commissions, rent, advertising, office salaries, and depreciation), interest, and tax. Remember that commissions and advertising are given as a percentage of the total sales, so be sure to calculate those accordingly. You would then subtract the cost of goods sold and these expenses from your total sales to get your income before interest and taxes. Deducting your interest and taxes will give you your net income, and incur the pattern for each month of the first quarter to get your quarterly result.
What is the total net income for the first quarter for Fortune, Inc. based on the budgeted income statement?
The total net income for the first quarter for Fortune, Inc. is $377,595 based on the budgeted income statement.