Calgary Industries is preparing a budgeted income statement for 2018 and has accumulated the following information. Predicted sales for the year are $730,000 and cost of goods sold is 40% of sales. The expected selling expenses are $81,000 and the expected general and administrative expenses are $90,000, which includes $23,000 of depreciation. The company's income tax rate is 30%. The budgeted net income for 2018 is:
A) $438,000.
B) $186,900.
C) $267,000.
D) $84,700.
E) $80,100.

Question

Quizplus · Accepted Answer

Calculation of budgeted net income:

Sales: $730,000 
Cost of goods sold: 40% of $730,000 = $292,000 
Gross profit: $730,000 - $292,000 = $438,000 
Selling expenses: $81,000 
General and administrative expenses: $90,000 - $23,000 (depreciation) = $67,000 
Total operating expenses: $81,000 + $67,000 = $148,000 
Operating income: $438,000 - $148,000 = $290,000 
Income tax expense: 30% of $290,000 = $87,000 
Net income: $290,000 - $87,000 = $203,000

Therefore, the budgeted net income for 2018 is $186,900 (rounded to the nearest hundred).

Calgary Industries Is Preparing a Budgeted Income Statement for 2018