Using Nike\'s 10K from 2008, figure out for fiscal 2009: assume cost of sales is

Question

Using Nike's 10K from 2008, figure out for fiscal 2009: assume cost of sales is a variable cost and is 55% of revenue, selling and administrative expense is fixed, and income tax expense is variable and is 25% of income before income taxes.

A. Calculate budgeted net income if revenue increases by 10%.

B. Calculate budgeted net income if revenue decreases by 10%.

This is the second part of a question where the only difference was you didn't assume COS was variable and in this question, selling & admin exp is fixed.

FY08 vs FY07 Fiscal 2009 (estimated) Fiscal 2008 Fiscal 2007 % Change 1a. 10% increase (In millions, except per share data) Revenues $ 18,627.0 16,325.9 14% Cost of sales 10,239.6 9,165.4 12% Gross margin 8,387.4 7,160.5 17% Gross margin % 45.0% 43.9% Selling & administrative expense 5,953.7 5,028.7 18% % of Revenues 32.0% 30.8% Income before income taxes 2,502.9 2,199.9 15% Net income 1,883.4 1,491.5 26% Diluted earnings per share 3.74 2.93 28%

Explanation / Answer

A. Revenues increase by 10% Fiscal 2009 $ Revenues(18627*(100%+10%)) 20489.7 Cost of Sales(20489.7*55%) 11269.3 Gross Margin 9220.4 Gross Margin% 45% Selling & administrative expense 5953.7 % of revenues(5953.7/20489.7)% 29.0 Income before income taxes 3266.7 Net income(3266.7*(100-25)%) 2450.0 (Answer) B. Revenues decrease by 10% Fiscal 2009 $ Revenues(18627*(100%-10%)) 16764.3 Cost of Sales(16764.3*55%) 9220.3 Gross Margin 7544.0 Gross Margin% 45% Selling & administrative expense 5953.7 % of revenues(5953.7/16764.3)% 35.5 Income before income taxes 1590.3 Net income(1590.3*(100-25)%) 1192.7 (Answer)

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