In the current year, 2006, Katrina's Kids (KK) anticipates a surplus of $1,100,000 based upon sales of
Question:
In the current year, 2006, Katrina's Kids (KK) anticipates a surplus of $1,100,000 based upon sales of $6,480,000. Given a very successful first year with little effort, key members of the management team feel that they can expand the market significantly if they could use a publicity campaign that would make written materials more available throughout the nation. This would increase selling and administrative expenses by $125,000, however it is believed that this will result in a 17% increase in bracelet sales in 2007. This bump in sales could be realized at a critical time as KK. plans to begin disseminating funds sometime during the next year.
Other proposed changes for 2007 include changes in the stringing process that would result in variable manufacturing overhead of $1.95/bracelet. This major change would cost approximately $500,000 for machinery, which is expected to have a useful life of 10 years. Management believes that this machinery would serve to increase factory capacity from 750,000 units to 1,100,000 units. KK would purchase this machinery in the first quarter (January) of 2007 and pay for it in March.
All bracelets are sold to retail outlets on credit. Collections for bracelets are typically made as follows: 50% in the month of sale and 50% in the month following the month of sale. Depreciation is computed using the straight-line method and, a full year of depreciation will be taken in the first year. Cash disbursements for raw materials are made in the month after the purchase. Other expenses are paid for as incurred. KK keeps a supply of bracelets on hand at the end of every month equivalent to one month's sales. Raw materials are purchased on an as needed basis, so at the end of the month there is no balance in raw materials inventory.
Determine the budgeted cost of goods manufactured and cost of goods sold for 2007.
South Western Federal Taxation 2015 Essentials of Taxation Individuals and Business Entities
ISBN: 9781285438290
18th edition
Authors: James Smith, William Raabe, David Maloney, James Young