1.

Prepare a projected statement of cost of goods sold for 2006, a projected income statement for
2006, and a projected balance sheet as of December 31, 2006,

Browning Manufacturing Company

Projected Statement of Cost of Goods Sold
For the period ending December 31, 2006
Finished goods inventory, 1/1/2006 $ 257,040.00
Wook in process inventory, 1/1/2006 $ 172,200.00
Materials Used
Beginning $ 110,520.00
Add: Purchases $ 825,000.00
Less: Ending $ -124,520.00 $ 811,000.00
Plus: Factory Expenses
Direct manufacturing labor $ 492,000.00
Factory Overhead:
Indirect manufacturing labor $ 198,000.00
Power, heat, and light $ 135,600.00
Depreciation of plant $ 140,400.00
Social Security taxes $ 49,200.00
Taxes and insurance, factory $ 52,800.00
Supplies $ 61,200.00 $ 637,200.00
$ 2,112,400.00
Less: Work in process inventory, 12/31/2006 $ -210,448.00
Cost of goods manufactured $ 1,901,952.00
$ 2,158,992.00
Less: Finished goods inventory, 12/31/2006 $ -352,368.00
Cost of goods sold $ 1,806,624.00

Browning Manufacturing Company

Projected Income Statement
For the period ending December 31, 2006
Sales $ 2,562,000.00
Less: Sales returns and allowances $ 19,200.00
Sales discounts allowed $ 49,200.00 $ 68,400.00
Net Sales $ 2,493,600.00
Less: Cost of goods sold (per schedule) $ 1,806,624.00
Gross margin $ 686,976.00
less: Selling and administrative expenses $ 522,000.00
Operating income $ 164,976.00
Less: Interest expense $ 38,400.00
Income before federal and state income tax $ 126,576.00
Less:Estimated income tax expense $ 58,000.00
Net income $ 68,576.00
Browning Manufacturing Company
Projected Balance Sheet
As of December 31, 2006
Assets
Current Assets:
Cash and marketable securities $ 443,640.00
Accounts receivable, net $ 201,360.00
Inventories:
Materials $ 124,520.00
Work in process $ 210,448.00
Finished goods $ 352,368.00
Supplies $ 22,080.00 $ 709,416.00
Prepaid taxes and insurance $ 91,920.00
Total current assets $ 1,446,336.00
Other Assets
Manufacturing plant at cost $ 2,822,400.00
less: Accumulated Depreciation $ 1,047,600.00 $ 1,774,800.00

Total Assets $ 3,221,136.00

Liabilities and Shareholders' Equity

Current liabilities
Accounts Payable $ 288,360.00
Notes Payable $ 552,840.00
Income taxes payable $ 5,800.00
Total current liabilities $ 847,000.00
Shareholders' equity:
Capital stock $ 1,512,000.00
 Retained Earnings $ 862,136.00 $ 2,374,136.00

Total Liabilities and Shareholders' Equity $ 3,221,136.00

2. Describe the principal differences between the 2006 estimates and the 2005 figures. In what
respects is 2006 performance expected to be better than 2005 performance, and in what
respects is it expected to be worse?

Better

a. Net Sales was increase to 11.62 %.

b. Gross margin was increase to 3.19%

c. Reduction in the accounts receivable from 311,760.00 to 201,360.00. Management make an
aggressive effort to collect its receivable on time.

Worse

a. Significant increase in selling and administrative expenses up to 19.41%

b. Increase in interest expense to 12.68%

c. Reduction in the income before federal and state income tax to 34.93%.

d. Significant increase in inventory from 557,040.00 to 709,416.00.

3. Does the budget indicate that management will achieve its note payable repayment goal? If not,
what do you suggest they do to achieve their minimum objective?

No. The projected cash balance is not enough if the management wants a year cash balance of 150,000.
The management should properly plan the procurement with regards to its inventory because there is a
huge increase and there investment were mostly tied up there.

4. Does the budget indicate management’s inventory turnover goal will be achieved? If not, what
do you suggest they do to improve the company’s inventory turnover?

No. Increasing the cost of inventory for the period means that it takes a longer days to convert it to cash.
Management should reduce the cost of inventory on hand as much as possible.

5. What does the budget indicate might happen to the company’s trade credit standing?

On the analysis, the company credit standing becomes weak. Due to the huge increase in the
procurement of inventory, the company make increase payables to its suppliers.