Pendleton Company, a merchandising company, is developing its master budget for 2015. The income statement for 2014 is as follows:. Pendleton Company
Income Statement
For Year Ending December 31, 2014
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:.
1. Selling prices will increase by 6 percent, and sales volume will increase by 4 percent.
2. The cost of merchandise will increase by 3 percent.
3. 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.
4. The estimated uncollectibles are 2 percent of budgeted sales.

Answer and Explanation:

The Preparation of budgeted functional income statement for 2015 is shown below:-

                              Pendleton Company

                      Budgeted functional income statement

                           For the year ended 2015

Particulars                                                            Amount

Sales revenue                                                     $2,204,800

($2,000,000 × 106% × 104%)

Less:

Estimated uncollectible accounts at 2%          $44,096

Net sales revenue                                             $2,160,704

Less: Cost of goods sold                                  $1,178,320

($1,100,000 × 103% × 104%)

Gross Profit                                                    $982,384

Less: Operating expense                                $575,000

($500,000 + 10%) + $25,000

Net income                                                       $407,384

We simply deduct all expenses from the sales revenue so that the net income could come

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