Honeywell Company Budgeted Net Income and Actual Net Income Calculation
a. What is the budgeted net income for October 2022?
Compute the budgeted net income for October 2022 based on the expected sales and costs.
b. What is the difference between budgeted and actual net income for October 2022?
Calculate the variance between the budgeted net income and actual net income.
a. Budgeted Net Income for October 2022:
Expected sales of October is 60,000 units at selling price $15 per unit.
Total sales = $15 × 60,000 = $900,000
Cost of goods sold = 60% of sales = 60/100 × 900,000 = $540,000
Fixed selling and administrative expenses:
Salaries expense = $120,000
Supplies expense = $45,000
Interest expense = $12,000
Total fixed selling and administrative expenses = $120,000 + $45,000 + $12,000 = $177,000
Net income = Sales - Cost of goods sold - Fixed selling and administrative expenses
$900,000 - $540,000 - $177,000 = $183,000
Therefore, budgeted net income for October 2022 is $183,000.
b. Difference between Budgeted and Actual Net Income:
Assuming actual sales were 60,000 units at $16 per unit, compute the difference between budgeted and actual net income.
Total sales = $16 × 60,000 = $960,000
Cost of goods sold = 60% of sales = 60/100 × 960,000 = $576,000
Total fixed selling and administrative expenses = $177,000
Actual net income = $960,000 - $576,000 - $177,000 = $207,000
The difference between budgeted and actual net income is $24,000.
By analyzing the projected data for October 2022, we can see that Honeywell Company forecasted a budgeted net income of $183,000. This calculation was based on the expected sales volume of 60,000 units at a selling price of $15 per unit. The total sales revenue was estimated to be $900,000, with the cost of goods sold amounting to $540,000.
Furthermore, the fixed selling and administrative expenses, including salaries expense, supplies expense, and interest expense, totaled $177,000. Subsequently, the budgeted net income was computed as $183,000 after deducting all costs from the sales revenue.
On the other hand, in a scenario where the company actually sold 60,000 units at an average price of $16 per unit, the actual net income would amount to $207,000. This resulted in a positive variance of $24,000 compared to the budgeted net income.
The difference between the budgeted and actual net income provides valuable insights into the company's financial performance and allows for strategic decision-making to enhance profitability in the future.