FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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
| 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:
-
Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal?
-
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.
-
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?
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
%
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
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