Running Head: BUDGET INCOME STATEMENT 1

Budget Income Statement

BUDGET INCOME STATEMENT 2

Solution to Problem 7-4 A

Budget income statement one of the decision that help manager to make decision to

accept the forecast analysis to increase profit in future. To make decision, manager looks two

forecasting that may be short term and long terms. For example, Lilliput Company has following

data and assume this expected result will following in coming year such as January, February

and March as follows.

Given, per unit
Buys 60
Sells 130
Commision on sales 10%

Lilliput Company
Income Statement
For monts ended december

Sales (10000 * $130) 1300000

cost of good sold (10000 * $60)
600000
Gross Profit 700000
Expense
Sales Commision (10%) 130000
Advertising 200000
Store Rent 24000
Administrative 40000
Depreciation 50000
Other Expenses 12000
Total Expenses 456000
Net Income 244000

Proposed Plan Forecasting

The manager found these net incomes if they accept the alternatives plan as follows:

From the data, net income of January 2016, February 2016, and March 2016 are $102500,

$150350 and $202985.

BUDGET INCOME STATEMENT 3

Calculation of Budget Income Statement for forecast Months

Budget Income Statement for Jaunary 2012 , February 2012

and March 2012
Jaunary February March Assume of April
Units Sold 11000 12100 13310 14641
Price 115 115 115 115
Sales 1265000 1391500 1530650 1683715
cost of good sold 660000 726000 798600 878460
Gross Profit 605000 665500 732050 805255
Expense 0
Sales Commision (10%) 126500 139150 153065 168371.5
Advertising 250000 250000 250000 250000
Store Rent 24000 24000 24000 24000
Administrative 40000 40000 40000 40000
Depreciation 50000 50000 50000 50000
Other Expenses 12000 12000 12000 12000
Total Expenses 502500 515150 529065 544371.5
Net Income 102500 150350 202985 260883.5

Analysis the Proposed Plan

For short term plan, I believe manager should not accepted the alternative proposed plan because

it gives loss in profit of the organization among January, February and March than they accepted

the previous forecast where they have 244,000 net income profit in each months.

However, if they look for long term beyond the given month (March 2016) and assume

that sales increase by 10% in each months with other data remaining same then they must

accepted the alternatives plans. Because, Net Income after March is increased by 16883.5

(260883.5 244000) in April 2016 and go on rise in successive months.

BUDGET INCOME STATEMENT 4

Reference

Wild, J. & Shaw, K. (2012). Managerial Accounting. Columbia. Univ. of MI. ISBN-13-978-

0078110849