Top executive officers of Tildon Company, a merchandising firm, are preparing the next year’s budget. The controller has provided everyone with the current year’s projected income statement

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Question

Top executive officers of Tildon Company, a merchandising firm, are preparing the next year’s budget. The controller has provided everyone with the current year’s projected income statement.

 

  Current Year
Sales revenue $ 1,600,000  
Cost of goods sold   1,120,000  
Gross profit   480,000  
Selling & administrative expenses   190,000  
Net income $ 290,000  
 

 

Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $30,000. The president has announced that the company’s goal is to increase net income by 15 percent. 

 

Required

The following items are independent of each other:

 

  1. Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal?

  2. The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production manager believes that an improved production procedure can cut cost of goods sold by 2 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income.

  3. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $230,000. With the increased advertising, the company expects sales revenue to increase by 15 percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the company reach its goal?

a. Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal?
b. The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production
manager believes that an improved production procedure can cut cost of goods sold by 2 percent. Prepare a pro forma income
statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling &
administrative expenses to achieve the budgeted net income.
c. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and
administrative expenses to $230,000. With the increased advertising, the company expects sales revenue to increase by 15
percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the
company reach its goal?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal?
(Round "Percentage increase" to 2 decimal places. (i.e., .2345 should be entered as 23.45).)
TILDON COMPANY
Pro Forma Income Statement
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
Percentage increase
%
Transcribed Image Text:a. Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal? b. The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production manager believes that an improved production procedure can cut cost of goods sold by 2 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income. c. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $230,000. With the increased advertising, the company expects sales revenue to increase by 15 percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the company reach its goal? Complete this question by entering your answers in the tabs below. Required A Required B Required C Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal? (Round "Percentage increase" to 2 decimal places. (i.e., .2345 should be entered as 23.45).) TILDON COMPANY Pro Forma Income Statement Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income Percentage increase %
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production
manager believes that an improved production procedure can cut cost of goods sold by 2 percent. Prepare a pro forma income
statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling
& administrative expenses to achieve the budgeted net income.
Show lessa
TILDON COMPANY
Pro Forma Income Statement
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
Reduction in selling & administrative expenses
percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the
company reach its goal?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and
administrative expenses to $230,000. With the increased advertising, the company expects sales revenue to increase by 15
percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will
the company reach its goal?
Show less a
TILDON COMPANY
Pro Forma Income Statement
Sales revenue
Cost of goods sold
Transcribed Image Text:Complete this question by entering your answers in the tabs below. Required A Required B Required C The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production manager believes that an improved production procedure can cut cost of goods sold by 2 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income. Show lessa TILDON COMPANY Pro Forma Income Statement Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income Reduction in selling & administrative expenses percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the company reach its goal? Complete this question by entering your answers in the tabs below. Required A Required B Required C The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $230,000. With the increased advertising, the company expects sales revenue to increase by 15 percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the company reach its goal? Show less a TILDON COMPANY Pro Forma Income Statement Sales revenue Cost of goods sold
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education