delft house inc a multinational company based in amsterdam organizes and coordinates 544712

Budgeted Income Statement

Delft House, Inc., a multinational company based in Amsterdam, organizes and coordinates art shows and auctions throughout the world. Its budgeted and actual costs for last year are as follows:

Delft House, Inc., has budgeted the following fixed costs for the coming year: executive salaries, €440,000; advertising expense, €190,000; merchandise insurance, €80,000; and liability insurance, €68,000. Additional information pertaining to the operations of Delft House, Inc., in the coming years is as follows:

a. Net receipts are estimated at €6,400,000.

b. Salaries expense for staging will increase 20 percent over the actual figures for the last year.

c. Travel costs are expected to be 11 percent of net receipts.

d. Auctioneer services will be billed at 9.5 percent of net receipts.

e. Space rental costs will be 20 percent higher than the amount budgeted in the last year.

f. Printing costs are expected to be €190,000.

g. Home office costs are budgeted for €230,000.

h. Shipping costs are expected to be 20 percent higher than the amount budgeted in the last year.

i. Miscellaneous expenses for the coming year will be budgeted at €28,000.

Because the company sells only services, it has expenses only and no cost of sales.

(Net receipts equal gross margin.)

1. Using a 40 percent income tax rate, prepare the company’s budgeted income statement for the coming year.

2. Should the budget committee be worried about the trend in the company’s operations? Explain your answer.