Please answer problem 10.1!

Problem 10.1 (L02) Master Budget (Note: This problem is similar to Review Problem 2, only the num. bers have been changed. Students who get stuck should consult the solution to Review Problem 2.)

The results of operations for the Preston Manufacturing Company for the fourth quarter of 2020

were as follows:

Sales

Less variable cost of sales

$550,000

330.000

220.000

Contribution margin

Less fixed production costs

$120,000

55,000

Less fixed selling and administrative expenses

Income before taxes

Less taxes on income

175,000

45.000

18,000

$ 27,000

Net income

Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of goods sold. Fixed production costs are charged to expense in the period incurred.

The company's balance sheet as of the end of the fourth quarter of 2020 was as follows:

Assets:

Cash

Accounts receivable

Inventory

Total current assets

Property, plant, and equipment

Less accumulated depreciation

$ 160,000

220,000

385.000

765.000

440.000

110.000

$1.095.000

Total assets

Liabilities and owners' equity:

Accounts payable

Common stock

Retained earnings

Total liabilities and owners' equity

66.000

540.000

489.000

$1.095,000

Additional information:

1. Sales and variable costs of sales are expected to increase by 12 percent in the next quarter.
2. All sales are on credit with 60 percent collected in the quarter of sale and 40 percent collected in the following quarter.
3. Variable cost of sales consists of 40 percent materials, 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit. Fifty percent are paid for in the quarter of pur-chase, and the remaining amount is paid for in the quarter after purchase. The inventory balance is not expected to change. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred.
4. Fixed production costs (other than $9,000 of depreciation expense are expected to increase by three percent. Fixed production costs requiring payment are paid in the quarter they are incurred.
5. Fixed selling and administrative costs (other than $7,000 of depreciation expense are expected to increase by two percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred.
6. The tax rate is expected to be 20 percent. All taxes are paid in the quarter they are incurred.
7. No purchases of property, plant, or equipment are expected in the first quarter of 2021