Explanation of the Budgeted Income Statement
You are hired as a new cost accountant to Ciccetti Corporation. The company manager, David, is having a meeting with you in his office. He brought you this budgeted income statement that was completed by the previous cost accountant. David asks you to provide him with a report explaining the statement in clear, straightforward language, and how you plan to handle the annual budget.
Flexible Budget Performance Part 2
Flexible Budget Activity Variances Planning Budget
Customers served (q) 36,000 33,000
Revenue ($4.80q) $172,800 $14,400 F $158,400
Expenses:
Wages and salaries ($36,900 + 1.60q) 94,500 4,800 U 89,700
Supplies ($0.90q) 32,400 2,700 U 29,700
Insurance ($13,300) 13,300 0 13,300
Miscellaneous Expense ($6,300 + $0.40q) 20,700 1,200 U 19,500
Total expense 160,900 8,700 U 152,200
Net operating income $11,900 $5,700 F $6,200
Instructions
Write a 2–3 page report in which you:
Explain the budgeted income statement.
Outline how you would create annual budgeted financial statements.
Analyze the difference between a static budget and a flexible budget, including the importance of each.
Evaluate the importance of reading and correctly interpreting budgeted financial statements.
Use three sources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment.
Case on Budgeting
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Explanation of the Budgeted Income Statement
The budgeted income statement is an overview of how the corporation is expected to perform financially during a specified period (Maheshwari et al., 2021). The budget provides the estimated sales for the period. In addition, the budget also provides the expected expenses and costs to be incurred in the production process. The total expenses are deducted from the total sales revenue to determine the expected net profit. Through so doing, the net income (profit) for the annual period is determined.
The provided budget does not present the actual financial performance of the corporation. Rather, it gives the expected performance. Later, after the close of the financial period underdetermination, the actual budget is determined and compared with the estimates. The corporation did well if the actual performance nears or exceeds the budgeted performance. However, if the profits are relatively too low or a loss is made, the corporation should return to the drawing board and establish what went wrong.
Here is a further breakdown. The financial statement stipulates that revenue of $172,800 was expected to be made from serving 36,000 customers. The selling price to each customer is $4.80. The total expenses for the period were expected to be $160,000. However, at the end of the financial period, the actual number of customers served was 33000, making the income $158,400. The actual expenses, on the other hand, amounted to $152 200. Therefore, the net operating income was $6200.
How to Create an Annual Budgeted Financial Statements
There are several steps that I would follow to effectively create an annual budgeted financial statement. First, I would review the strategic plan of the corporation. The budget must be in line with the strategic goals. Secondly, I would be sure to review key performance indicators as well as the cost drivers of the corporation. After doing so, the third step would involve critically reviewing historical financial performance, industry trends as well as the expectations of the management. Equipped with this information, the fourth step would be to carry out an estimate of the revenue that the corporation is likely to experience in the course of the upcoming financial period. To arrive at a reasonable estimate, I would be sure to consider the likely expenses. Deducting the expenses from expected sales revenue would give rise to the expected net operating income for the financial period.
Fourthly, aft...