need help with this problem 7-20A with different assumptions 7-20A Preparing pro
ID: 2523288 • Letter: N
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need help with this problem 7-20A
with different assumptions 7-20A Preparing pro Forma income statements with dilfere Problem budget. The controller has provided everyone with the current year's pr reparing the Top esecutive officers of Preston Company, a merchandising firm, are with the current year's projected income next years Current Year Sales revenue Cost of goods sold Gross profit Selling & admin. expenses Net income $3,200,000 2.240,000 960,000 380,000 S 580,000 usually 70 percent of sales revenue, and selling and administrative Cost of goods sold i sales revenue, and se expenses are usually 10 percent of sales plus a fixed cost of S60,000. The president that the company's goal is to increase net income by 15 percent, Required The following items are independent of each other. What percentage increase in sales would enable the company to r answer with a pro forma income statement. each its goal? Support your ompany does not expect an increase in procedure ca a. b. The market may become stagnant next year, and the c sales revenue. The production manager believes that an improved producti cut cost of goods sold by 2 percent. What else can the company do to re a pro forma income statement illustrating your proposal. The company decides to escalate its advertising campaign to boost consumer which will increase selling and administrative expenses to $460,000. 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. Can the company reach its goal? blas 7 21 Prenaving a cash budget on e. recognition,Explanation / Answer
1.
a. Proforma Income Statement Particulars Amount Sales Revenue 3635000 Less-Cost of goods sold 2544500 Less-selling & dist. Expense (variable) 363500 Contribution 727000 Less-selling & dist. Expense (fixed) 60000 Net Income 667000 working- Statement showing calculation of desired sales Net Income (580000*115%) 667000 Add-selling & dist. Expense (fixed) 60000 Contribution 727000 Contribution in % of sales 20% (100-70-10) Desired Sales 3635000 (contribution/Contribution in % of sales) Percentage increase In sales =(3635000-3200000)*100/3200000 =13.59% b. If the COGS reduced by 2% then Profit be Proforma Income Statement Particulars Amount Sales Revenue 3200000 Less-Cost of goods sold 2176000 {320000*(70%-2%)} Less-selling & dist. Expense (variable) 320000 {320000*10%} Contribution 704000 Less-selling & dist. Expense (fixed) 60000 Net Income 644000 c. Proforma Income Statement Particulars Amount Sales Revenue 3680000 (368000*115%) Less-Cost of goods sold 2576000 {368000*70%} Less-selling & dist. Expense (variable) 368000 {368000*10%} Contribution 736000 Less-selling & dist. Expense (fixed) 92000 (460000-368000) Net Income 644000 As the profit is less then the profit determined in point a. so it can be said the company can't reach its goalRelated Questions
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