A - INCOME STATEMENT
1. Prepare a budgeted income statement through operating income by quarter and for the year using the contribution margin format--use the format provided on the template as a reference. Then add interest expense to your income statement to determine income before tax. Interest expense can be calculated from the information provided for the cash budget. (For purposes of this project, we will ignore income taxes.)
2. Using your budgeted income statement for the year, answer the following questions at the bottom of your income statement sheet. You should use operating income in your calculations, not income before tax. Label your answers, but make sure that your answers contain formulas incorporating cell references.
• What is the budgeted break-even point in units? (Round to the nearest whole unit)
• What is the margin of safety percentage at the budgeted activity level for the year? (Round to the nearest one percent)
• What is operating leverage at the budgeted activity level for the year? (Round to one decimal place)
• If Crossley wants to earn a $5,500,000 operating profit next year, how many units must the company sell? (Round to the nearest whole unit)

B - CASH BUDGET   
Given the following additional information, prepare a cash budget by quarter and for the year using the format provided. The first quarter has been done for you—you should make sure that you understand where these amounts come from before attempting the remaining quarters.
ADDITIONAL INFORMATION:
• Historically, 65% of sales have been collected in the quarter of sale and 35% in the following quarter; uncollectible accounts have been insignificant. Accounts receivable at 1/1/18 is expected to total $3,069,360.
• Crossley pays for materials in the quarter after purchase and accounts payable at 1/1/18 is projected to be $2,600,000.
• Crossley pays all other variable product costs, including direct labor, in the quarter in which they are incurred.
• Fixed operating costs are paid in the quarter incurred; sales commissions are paid in the quarter following the sale, and commissions payable at 1/1/18 is estimated at $187,425.
• Beginning cash $1,625 ,000
• Crossley plans to pay quarterly dividends of $250,000
• Crossley is planning to purchase additional production equipment requiring a cash outlay of $1,950,000 at the beginning of the third quarter.
• Crossley has a $1,500,000 8% note outstanding on which it will make payments of $200,000 principal plus interest on the outstanding balance on June 30 and December 31.

C - BALANCE SHEET
NOTE:    If you cannot get your balance sheet to balance, add a line item in the appropriate section titled “Plug” for the amount needed.
Presented on the template provided is Crossley’s projected balance sheet at 12/31/17. Prepare a budgeted balance sheet at 12/31/18 next to it, then answer the following questions in the space below your balance sheets. Label your answers, but the amounts themselves should be calculated by formulas that include cell references:
• What is the budgeted return on investment (round your answer to the nearest one percent)?
• If the company has established a minimum required rate of return of 22% for Crossley, what is budgeted residual income (round your answer to the nearest dollar)?
• If the CEO of Crossley has set a target ROI of 28%, how many units would the company have to sell for the year (round your answer to the nearest whole unit)?

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