Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 16

Prepare Budgeted Financial Statements
Cameron Parts has the following data from year 1 operations, which are to be used for developing year 2 budget estimates:

All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $4,850 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $7,000. Sales volume and prices are expected to increase by 12 percent and 6 percent, respectively. On a per unit basis, expectations are that materials costs will increase by 10 percent and variable manufacturing costs will decrease by 4 percent. Fixed manufacturing costs are expected to decrease by 7 percent.
Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 8 percent. Inventories are kept at zero. Cameron operates on a cash basis.
Required
Prepare a budgeted income statement for year 2.