- 10 Marks
Question
The Income Statement of AJ Ltd for the year ended December 2022 was as follows:
Projections for 2023:
Sales: The current sales represent 15% of market share. Management plans to increase this to 20%. Meanwhile, industry experts are projecting a 12% growth in the sector.
Cost of Sales: Improvement in material quality will reduce cost of sales by 5% from the current level.
Other Expenses:
i) Administrative costs will increase by 20% over the 2022 actual figure.
ii) Selling and distribution costs will increase by 18% over the 2022 actual figure.
iii) Finance costs will remain at the same percentage of sales revenue as in 2022.
Required:
Prepare the budgeted income statement for the year 2023.
Answer
Budgeted income statement for the year ending 2023
Workings:
Sales Revenue:
Market size (2022): GH¢120,000 / 15% = GH¢800,000
Projected market size for 2023 (12% growth): GH¢800,000 × 1.12 = GH¢896,000
AJ Ltd’s projected market share: 20% of GH¢896,000 = GH¢179,200
Cost of Sales:
Current cost percentage: 90,000 / 120,000 = 75%
Improvement due to material quality: New cost percentage = 70%
Budgeted cost of sales = 70% of GH¢179,200 = GH¢125,440
Administrative Expenses:
2022 actual: GH¢8,000
Increase: 20% × GH¢8,000 = GH¢1,600
Total for 2023 = GH¢8,000 + GH¢1,600 = GH¢9,600
Selling & Distribution Expenses:
2022 actual: GH¢7,000
Increase: 18% × GH¢7,000 = GH¢1,260
Total for 2023 = GH¢7,000 + GH¢1,260 = GH¢8,260
Finance Expenses:
2022 finance expense percentage of sales: GH¢4,500 / GH¢120,000 = 3.75%
Finance expense for 2023 = 3.75% × GH¢179,200 = GH¢6,720
(10 marks)
- Topic: Budgetary control, Master Budget
- Series: MAR 2023
- Uploader: Cheoli