Question

Budgeted selling and administrative expenses for Royal Tire Co. in P7-2 for the year ended December 31, 2013, were as follows:
In P7-2, Royal Tire Co.'s budgeted unit sales for the year 2013 were:
Passenger-car tires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Truck tires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
The budgeted selling price for truck tires was \$200 per tire, and for passenger car tires it was \$65 per tire. The beginning finished goods inventories were expected to be 2,000 truck tires and 5,000 passenger tires, for a total cost of \$326,478, with desired ending inventories at 2,500 and 6,000, respectively, with a total cost of \$400,510. There was no anticipated beginning or ending work-in-process inventory for either type of tire. The standard materials quantities for each type of tire were as follows:
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The purchase prices of rubber and steel were \$2 and \$3 per pound, respectively. The desired ending inventories for rubber and steel were 60,000 and 6,000 lb, respectively. The estimated beginning inventories for rubber and steel were 75,000 and 7,000 lb, respectively. The direct labor hours required for each type of tire were as follows:
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The direct labor rate for each department is as follows:
Molding Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$15 per hour
Finishing Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$13 per hour
Budgeted factory overhead costs for 2013 were as follows:
Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$198,500
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,200
Depreciation of building and equipment . . . . . . . . . . . . . . . . . . 157,500
Power and light . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,900
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$692,100

Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$942,000
Office rent expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000
Office salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821,000
Office supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,500
Officers' salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661,000
Sales salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 868,000
Telephone and fax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,500
Travel expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,000

Required:
1. Prepare a selling and administrative expense budget, in good form, for the year 2013.
2. Using the information above and the budgets prepared in P7-2, prepare a budgeted income statement for the year 2013, assuming an income tax rate of 40%.

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