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Budgeted Income Statement
Tyrone Roberts
Bellevue University
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Abstract
A budgeted income statement is simply a predicted income statement for a future period of time,
and is also called a pro forma income statement (Wiley, n.d.). Based on the Budgeted Income
Statement for the year ending December 31, 2013, I will be answering questions such as: Does
the budgeted income statement indicate any changes in Gross Profits for 2013? Does the
budgeted income statement indicate any changes in Net Operating Income for 2013? Does the
budgeted income statement indicate any changes in Net Income (Earnings after Taxes, EAT) for
2013? What are the Earnings per Share in the 2013 budgeted income statement? What are the
Retained Earnings in the 2013 budgeted income statement? Name at least three external factors
that should be considered when preparing a budgeting or forecasting document and explain why
their consideration is important. In the end, all these questions will bring the reader a better
understanding of the document.
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Budgeted Income Statement
The gross profits are expected to decrease in 2013 when compared to 2012 by an amount
of $4,400 and 0.31% in percentage terms. This is because while the sales revenue increases by
0.5% only, the raw materials increase by 3.75% which causes the increase in expenses to be
greater than the increase in revenues and thus decline in gross profits.
The net operating income is projected to increase by $5,600 in 2013 when compared to
2012 and 0.75% in percentage terms. This is because the depreciation expense has decreased by
10% which offsets the decline in gross profits.
The net income is expected to increase by $4,200 in 2013 in contrast to 2012, which
represents a 0.99% increase. In terms of magnitude, this increase is less than the increase in net
operating income since there is no other source of income in 2013 and even though the deferred
tax liability is also expected to decrease, the non-availability of other income offsets the decrease
in tax liability. The overall increase in net income compared to 2012 is due to lower expenses
and not due to relatively higher revenues, indicating increasing efficiency in operations.
The earnings per share are expected to be $0.35, which increase by $0.04 in 2013 and
represent an increase of 1.28% over 2012 since there has been a decline in the total costs of the
company, leading to higher net income.
The retained earnings are projected to be $235, 300 in 2013, which represent an increase
of $15,300 or 6.97% over 2012. This is because there has been decline in expected dividends to
be paid and the net income has also increased.
When preparing budgeted statements, it is firstly important to consider the external
economic conditions. This is because the company can determine the growth of sales
accordingly. If economy is in recession and the product is luxury good, its sales are expected to
decline. Second, it is important to consider competitor’s strategies since that would impact sales
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of the company also. Thirdly, the expected changes to be made in operations should be
considered so that scope for cost savings can be identified.
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References
Wiley, C. (n.d.). What Is a Budgeted Income Statement? | Chron.com. Retrieved from
http://smallbusiness.chron.com/budgeted-income-statement-22939.html