Dalley Inc All Depreciation Charges Are Fixed and Are Expected to Remain

question 150

Essay

Dalley Inc. has the following information for its first year of operations:
$\begin{array}{lll}\text { Revenues (200,000 units) }&\$2,900,000\\\text { Manufacturing costs: } & & \\\text { Materials } & \$ 168,000 \\\text { Variable cash costs } & 142,400 \\\text { Fixed cash costs } & 327,600 \\\text { Depreciation (fixed) } & 999,000\\\text { Marketing \& administrative costs: } & \\\text { Marketing (variable) } & 422,400 \\\text { Marketing depreciation } & 149,600 \\\text { Administrative (fixed) } & 509,200 \\\text { Administrative depreciation } & 74,800 \\\text { Total costs } & \$ 2,793,000 \\ \text { Operating profits } & \$ 107,000\end{array}$
All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 15%, but sales prices are expected to fall by 4%. Material costs per unit are expected to decrease by 6%. Other unit variable manufacturing costs are expected to decrease by 2.5% per unit. Fixed manufacturing costs (other than depreciation) are expected to increase by 6%.
Variable marketing costs per unit will remain constant. Administrative costs (other than depreciation) are expected to increase by 10%.
Assume there are no inventories. Dalley operates on a cash basis.
Required:
Prepare a budgeted income statement for year 2.

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Definitions:

Receiver Division

The part of a business that receives allocated costs from service departments or benefits from intercompany transactions within a company.

Transfer Price

The price charged for the sale of goods or services between divisions within the same company.

Transfer Price

The selling price for goods and services among different segments within the same enterprise.

Idle Capacity

Unused production capability or facilities that could be producing goods or services but are currently not due to lack of demand or inefficiency.