Budgeting

A budgeted income statement is formatted similarly to a traditional income statement except that it contains budgeted data. Once all of the operating budgets have been created, these costs are used to prepare a budgeted income statement and budgeted balance sheet. The manufacturing costs are allocated to the cost of goods sold and the ending inventory.

Big Bad Bikes uses the information on direct materials (Figure 7.9), direct labor (Figure 7.10), and manufacturing overhead (Figure 7.11) to allocate the manufacturing costs between the cost of goods sold and the ending work in process inventory, as shown in (Figure 7.13).

	Cost of Goods Sold	Ending Inventory	Total
Direct Materials	$ 24,000*	$7,240	$31,240
Direct Labor	90,000**	15,750	105,750
Manufacturing Overhead	112,200	19,639	131,863
Total	$226,224	$42,629	$268,853
*6,000 units x 3.2 lbs/unit x $1.25/1b **6,000 units x 0.75 hr/unit x $20/hr

Figure 7.13 Allocating Costs to Cost of Goods Sold and Ending Work in Process Inventory for Big Bad Bikes.

Once they perform this allocation, the budgeted income statement can be prepared. Big Bad Bikes estimates an interest of $954. It also estimates that $22,000 of its income will not be collected and will be reported as uncollectible expense. The budgeted income statement is shown in Figure 7.14.

BIG BAD BIKES Budgeted Income Statement For the Year Ended December 31, 2019
Sales	$440,000
Cost of Goods Sold	226,200
Gross Profit	213,800
Sales and Administrative Expenses	87,000
Uncollectible Expense	22,000
Income before Interest	104,800
Interest Expense	954
Income Tax	4,000
Net Income	$99,846

Figure 7.14 Budgeted Income Statement for Big Bad Bikes.