Pendleton Company, a merchandising company, is developing its master budget for 2015. The income statement for 2014 is as follows: Gross sales $2,000,000
Less: Estimated uncollectible accounts (40,000)
Net sales 1,960,000
Cost of goods sold (1,100,000)
Gross profit 860,000
Operating expenses (including $25,000 depreciation) (500,000)
Net income $360,000

The following are management’s goals and forecasts for 2015:

a. Selling prices will increase by 6 percent, and sales volume will increase by 4 percent.
b. The cost of merchandise will increase by 3 percent.
c. All operating expenses are fixed and are paid in the month incurred. Price increases for operating expenses will be 10 percent. The company uses straight-line depreciation.
d. The estimated uncollectibles are 2 percent of budgeted sales.

Required
Prepare a budgeted functional income statement for 2015.

Budgeted functional income statement for 2015

Gross sales ($2,000,000  × 1.04 × 1.06)                                       $2,204,800

Less: Estimated uncollectible accounts ($2,204,800 × 2 %)         ($44,096)

Net sales                                                                                        $2,160,704

Cost of goods sold (1,100,000 × 1.03)                                          ($1,133,000)

Gross profit                                                                                     $1,027,704

Operating expenses (475,000 × 1.10)                                            ($522,500)

Depreciation                                                                                     ($25,000)

Net income                                                                                       $480,204

Explanation:

Make the adjustments stated on the 2014 Income Statement.

For Operating Expenses, it is wise to first remove the depreciation expense and apply the increment of 10% to reflect Operating Costs for 2015.

Treat Depreciation Expense separately and at the same amount as for 2014, since depreciation is calculated on straight line method.

in terms of experimental research, mcdonald’s charging different prices in the two cities relates to

answernaturalistic observation;