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Budgeted sales are $600,000, cost of goods sold $162,900, selling and administrative expenses $147,100 and the tax rate 20%. What is budgeted net income?
A$290,000
B$437,100
C$252,000
D$232,000
Answer & Solution
Correct answer: D. $232,000
1. Gross profit is sales minus cost of goods sold, which is $600,000 minus $162,900, or $437,100.
2. Selling and administrative expenses of $147,100 are deducted next.
3. Income before taxes is $437,100 minus $147,100, which is $290,000.
4. Income taxes are 20% of $290,000, which is $58,000.
5. Net income is $290,000 minus $58,000, which is $232,000.
6. $437,100 stops at gross profit and $290,000 stops before tax.
7. $252,000 would need income before taxes of $315,000, which none of these figures produce.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 7.9 Budgeted Income Statement_
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