Problem for Self-Study

Consider the Stylistic Furniture example described earlier. Suppose that to maintain its sales quantities, Stylistic needs to decrease selling prices by 3% to $582 per Casual table and $776 per Deluxe table. All other data are unchanged.

Required

Prepare a budgeted income statement, including all necessary detailed supporting budget schedules that are different from the schedules presented in the chapter. Indicate those schedules that will remain unchanged.

Solution

Schedules 1 and 8 will change. Schedule 1 changes because a change in selling price affects revenues. Schedule 8 changes because revenues are a cost driver of marketing costs (sales commissions). The remaining Schedules 2–7 will not change because a change in selling price has no effect on manufacturing costs. The revised schedules and the new budgeted income statement follow.

<p>A table shows revenues budget for Stylistic Furniture</p>

Schedule 1: Revenues Budget for the Year Ending December 31, 2020 is as follows:

  1. Casual tables
    • Selling price: 582 dollars
    • Units: 50,000
    • Total revenues: 29,100,000 dollars
  2. Deluxe tables
    • Selling price: 776 dollars
    • Units: 10,000
    • Total revenues: 7,760,000 dollars
  3. Total: 36,860,000 dollars
<p>A table shows the operating costs budget for Stylistic</p>

Schedule 8: Operating (Nonmanufacturing) Costs Budget for the Year Ending December 31, 2020 is as follows:

  1. Product design
    • Variable costs: None
    • Fixed costs: 1,024,000 dollars
    • Total costs: 1,024,000 dollars
  2. Marketing
    • Variable costs: 36,860,000 dollars times 0.065 equals 2,395,900 dollars
    • Fixed costs: 1,330,000 dollars
    • Total costs: 3,725,900 dollars
  3. Distribution
    • Variable costs: 2 dollars times 1,140,000 cubic feet equals 2,280,000 dollars
    • Fixed costs: 1,596,000 dollars
    • Total costs: 3,876,000 dollars
  4. Total
    • Variable costs: 4,675,900 dollars
    • Fixed costs: 3,950,000 dollars
    • Total costs: 8,625,900 dollars
<p>A table shows the budgeted income statement for Stylistic</p>

Stylistic Furniture Budgeted Income Statement for the Year Ending December 31, 2020 is as follows:

  1. Revenues
    • Schedule 1
    • 36,860,000 dollars
  2. Cost of goods sold
    • Schedule 7
    • 24,440,000 dollars
  3. Gross margin: 12,420,000 dollars
  4. Operating costs, product design
    • Schedule 8
    • 1,024,000 dollars
  5. Operating costs, marketing costs
    • Schedule 8
    • 3,725,900 dollars
  6. Operating costs, distribution costs
    • Schedule 8
    • 3,876,000 dollars
  7. Total operating costs: 8,625,900 dollars

  8. Operating income: 3,794,100 dollars