EXHIBIT 8 — GENERAL & ADMINISTRATIVE BUDGET
Estimated for each line item per Department Managers:
Management Personnel $110,000
Accounting Personnel 55,000
Legal Personnel 40,000
Technology Personnel 45,000
Rent & Utilities 25,000
Supplies 15,000
Miscellaneous 7,500
Total G & A Expenses $ 297,500
Budgeted Financial Statements
Based on the detail budgets we have prepared (Exhibits 1 thru , we can finalize our
budgets in the form of a Budgeted Income Statement. A few new line items are added to
account for non-operating items, such as income received on investments and financing
costs. The Finance and Tax Departments will assist in estimating items like financing
expenses and income tax expenses. The Budgeted Income Statement will pull together all
revenue and expense estimates from our previously prepared detail budgets.
EXHIBIT 9 — BUDGETED INCOME STATEMENT
Revenues (Exhibit 1) $720,000
Less Cost of Goods Sold (Exh 6) (144,125)
Gross Profit 575,875
Less Marketing (Exhibit 7) (135,500)
Less G & A (Exhibit (297,500)
Operating Income 142,875
Less Interest on Debt ( 8,000)
Income Before Taxes 134,875
Taxes @ 37.5% ( 50,578)
Net Income $ 84,297
Chapter 3
7
EXAMPLE 2 — BUDGETED INCOME STATEMENT
Halton Company has compiled the following information:
Planned sales are 50,000 units at a price of $ 110.00 per unit.
Beginning Inventory consists of 5,000 units at a cost of $ 60.00 per unit.
Planned production is 55,000 units with the following production cost:
Direct Materials are $ 18.50 per unit
Direct Labor required is 4 hours per unit @ $ 12.00 per hour
Overhead is estimated at 20% of Direct Labor Cost
Desired Ending Inventory is 6,000 units under the LIFO Method.
Marketing Expenses are budgeted at $ 350,000
General & Administrative Expenses are budgeted at $ 400,000
< - - - - - - - - - - - - - - - Budgeted Income Statement - - - - - - - - - - - - - - >
Sales (50,000 x $ 110) $ 5,500,000
Less Cost of Goods Sold:
Beginning Inventory (5,000 x $ 60.00) $ 300,000
Direct Materials (55,000 x $ 18.50) 1,017,500
Direct Labor (55,000 x 4 hours x $ 12.00) 2,640,000
Overhead ($ 2,640,000 x .20) 528,000
Cost of Available Sales 4,485,500
Less Ending Inventory (1) ( 380,500)
Cost of Goods Sold (4,105,000)
Gross Profits 1,395,000
Less Operating Expenses:
Marketing Expenses ( 350,000)
General & Administrative ( 400,000)
Net Income $ 645,000
(1) Under LIFO, last costs in are: $ 1,017,500 + $ 2,640,000 + $ 528,000 =
$ 4,185,500 / 55,000 = $ 76.10 x 5,000 = $ 380,500.
Now that we have a Budgeted Income Statement, we can prepare a Budgeted Balance
Sheet. The Budgeted Balance Sheet will provide us with an estimate of how much external
financing is required to support our estimated sales.
The main link between the Income Statement and the Balance Sheet is Retained Earnings.
Therefore, preparation of the Budgeted Balance Sheet starts with an estimate of the ending
balance for Retained Earnings. In order to estimate ending Retained Earnings, we need to
project future dividends based on current dividend policies and what management expects to
pay in the next planning period.
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