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Argosy University/ Phoniex University/
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Phoniex University
Oct-2001 - Nov-2016
36.   Master budget profit plan. Floral Products, Inc., has the following data from Year 1 operations, which are to be used for developing Year 2 budget estimates:
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Revenues (100,000 units)...............................................................................................                                                    $746,000
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Manufacturing Costs:
Materials  .........................................................................................................................                        $133,000
Variable Costs ................................................................................................................                         180,900 Fixed Costs (excluding depreciation) ......................................................................                                        72,000
Depreciation  (fixed).....................................................................................................                        89,000      474,900
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                    Â
Marketing and Administrative Costs:
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Marketing (variable) .................................................................................................... |
$ 95,000 |
 |
|
Depreciation of Marketing Building and Equipment............................................ |
22,600 |
||
Administrative (fixed) (excluding depreciation) .................................................. |
90,110 |
||
Depreciation of Administrative Building and Equipment ................................... |
8,400 |
 |
216,110 |
Total Costs .......................................................................................................................... |
 |
 |
691,010 |
Operating Profits ............................................................................................................... |
 |
 |
$ 54,990 |
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All depreciation costs are fixed. Sales volume and prices are expected to increase by 12 percent and 6 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 10 percent and variable manufacturing costs will decrease  by 4 percent. Fixed manufacturing costs are expected to decrease by 7 percent.
Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 8 Â percent.
Prepare a master budget profit plan for Year 2. Use a format similar to the one shown in Exhibit 9.7. Management wants to increase operating profits by 20 percent over Year 1’s
$54,990 expected profits. Based on your budget for Year 2, are profits expected to increase by 20 percent? Why or why  not?
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