Budgeting: Stillwater Video Company - Academic Champion Tutors

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

Sales
= 125,200 + 105,100 + 112,600
= 342,900
Other workings for the balance sheet
Account receivables
= 2 * 19,900
= 39,800
Prepaid expenses
= 20,000 + 3,420
= 23,420
Other assets
= 1.5 * 9,480
= 14,220
Accumulated depreciation
= 55,845 + (262,800 * 0.05) / 4
= 59,130
Accounts payable
= 52,640 * (100% 20%)
= $42,112
Mortgage payable
= 70,000 4,000
= $66,000
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: SouthÂ-Western Cengage Learning.

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

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

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