Budgeting: Stillwater Video Company

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Abstract

The paper focuses on coming up with a budgeted income statement and balance sheet for Stillwater Video Company, Inc. The company deals with the production and sale of two common brands of video games. The assignment aims to emphasize the importance of the budgeting process in a real-life scenario. Budgets that are prepared by companies differ depending on the nature of the business. Budgets aid organizations to plan for revenue, expenses and other financial aspects of the company. This ensures that the company operates smoothly during an entire financial period. The paper starts by estimating values that will be used to prepare the budgeted income statement and balance sheet. From the calculations, the estimated value of sales at the end of the three months is $342,900. The estimated gross profit margin amounts to $177,460 while the net profit amounts to $52,404. The calculations show that the company will make a net profit margin of 15.28% during the three months. The budgeted balance sheet shows that the current assets amount to $170,602. The value of total assets amounts to $388,492. The results further show that the total liabilities total $135,108 while the total stakeholders equity amounts to $253,384.

Workings

This section focuses on estimating closing balances of various types of inventory. These balances will be used to prepare the budgeted balance sheet. Some of the balances that will be calculated are materials, work in progress and finished goods inventory. At the end of the table, other values that will be used to prepare the income statement and the balance sheet will be estimated (Noreen, Brewer & Garrison 2014). Some of the values are sales, accounts receivables, prepaid expenses, accumulated depreciation, and accounts payable among others. Estimation of these values seeks to facilitate the preparation of the budgeted income statement and balance sheet (Abraham, Glynn, Murphy & Wilkinson, 2010). All the calculations are presented below.

Estimation of closing balances

$
Materials inventory
Opening balance 18,510
Direct materials purchases 58,100
Direct materials available for use 76,610
Direct materials used (62,400)
Ending balance 14,210
Work in progress inventory
Balance at the beginning of the period 24,680
Additions during the period:
Overhead 51,910
Direct materials used 62,400
Direct labor 42,880
Total cost used in production $181,870
Deduct the cost of goods manufactured 163,990
Balance at the end of the period 17,880
Finished goods inventory
Balance at the beginning of the period 21,940
Costs of goods manufactured 163,990
Cost of goods available for sale 185,930
Deduct cost of goods sold 165,440
Balance at the end of the period 20,490

Workings for the income statement

  1. Sales
    = 125,200 + 105,100 + 112,600
    = 342,900
    Other workings for the balance sheet
  2. Account receivables
    = 2 * 19,900
    = 39,800
  3. Prepaid expenses
    = 20,000 + 3,420
    = 23,420
  4. Other assets
    = 1.5 * 9,480
    = 14,220
  5. Accumulated depreciation
    = 55,845 + (262,800 * 0.05) / 4
    = 59,130
  6. Accounts payable
    = 52,640 * (100%  20%)
    = $42,112
  7. Mortgage payable
    = 70,000  4,000
    = $66,000
  8. Retained earnings
    Balance at the beginning of the period = $110,980
    Net income for the period = $52,404
    Retained earnings balance at the end of the period = $163,384

Budgeted income statement

Stillwater Video Company, Inc.

Budgeted Income Statement

For the Quarter Ended March 31

$ $
Sales 342,900
Cost of sales (165,440)
Gross profit 177,460
Operating expenses
Selling expenses 35,820
General and administrative expenses 60,240
Total operating expenses 96,060
Operating income 81,400
Interest expense (2,000)
Income before taxes 79,400
Income tax expense at 34% 26,996
Net income 52,404

Budgeted balance sheet

Stillwater Video Company, Inc.

As of March 31

$ $
Assets
Current assets
Cash 54,802
Account receivables 39,800
Materials inventory 14,210
Work in process inventory 17,880
Finished goods inventory 20,490
Prepaid expenses 23,420
Total current assets 170,602
Plant and equipment 262,800
Less accumulated depreciation 59,130 203,670
Other assets 14,220
Total assets 388,492
Liabilities and stockholders equity
Current liabilities
Accounts payable 42,112
Income tax payable 26,996
Total current liabilities 69,108
Long-term liabilities
Mortgage payable (70,000  4,000) 66,000
Total liabilities 135,108
Common stock 90,000
Retained earnings 163,384
Total stockholders equity 253,384
Total liabilities and equity 388,492

Conclusion

From the table above, the value of sales amounts to $342,900 while the cost of sales amounts to $165,400. The resulting gross profit amounts to $177,460. After deducting the operating expenses, the operating income amounts to $81,400. The interest expense amounts to $2,000 and income tax amounts to $26,996. The resulting net income is $52,404. If the company does not experience variation in the budgeted values, then it will generate profit in the first quarter. The budgeted balance sheet shows that the current assets amount to $170,602. The value of total assets amounts to $388,492. The results further show that the total liabilities total $135,108 while the total stakeholders equity amounts to $253,384. Therefore, an organization needs to prepare budgets (Needles, Powers & Crosson, 2010).

References

Abraham, A., Glynn, J., Murphy, M., & Wilkinson, B. (2010). Accounting for managers. USA: South­-Western Cengage Learning.

Needles, B., Powers, M., & Crosson, S. (2010). Principles of accounting. USA: South­-Western Cengage Learning.

Noreen, E., Brewer, P., & Garrison, R. (2014). Managerial accounting for managers. USA: McGraw-Hill Publishers Ltd.

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