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

question 90

Essay

Oregon Inc. has the following information for its first year of operations:
$\begin{array}{lr}\text {Revenues ( 250,000 units)}&\$3,730,000\\\text {Manufacturing costs:}\\\text { Materials } & \$ 665,000 \\\text { Variable cash costs } & 904,000 \\\text { Fixed cash costs } & 360,000 \\\text { Depreciation (fixed) } & 445,000\\\text { Marketing } \& \text { administrative costs: }\\\text { Marketing (variable) } & 475,000 \\\text { Marketing depreciation } & 113,000 \\\text { Administrative (fixed) } & 450,550 \\\text { Administrative depreciation } & 42,000\\\text {Total costs}&\$ 3,454,550 \\\text {Operating profits}&\$ 275,450\end{array}$
All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 13%, and sales prices are expected to increase by 4%. Material costs per unit are expected to increase by 8%. Other unit variable manufacturing costs are expected to increase by 10% 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 12%.
Assume there are no inventories. Oregon operates on a cash basis.
Required:
Prepare a budgeted income statement for year 2.

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Definitions:

Pretax Cost

The expense or cost of an investment or operation before the deduction of taxes.

Weighted Average Cost

An accounting method to determine the average cost of goods sold or produced, taking into account the varying costs over time.

Tax Rate

The percentage at which an individual or corporation is taxed, varying based on income level, type of good, or service, among other factors.

Leverage

The use of various financial instruments or borrowed capital, such as debt, to increase the potential return of an investment.