You have just completed the first year of operation for your business and have t

Question

You have just completed the first year of operation for your business and have the following information: sales, $200,000; cost of goods, $140,000; rent, $18,000; utilities, $8,400; insurance, $2,000; equipment, $3,500; and interest, $10,000. Your forecast indicates that your sales will increase by 20 percent. Your rental agreement provides for a 3 percent increase per year. You read an article indicating that utility costs in your area will increase by 10 percent next year. You just received a notice from your insurance company stating your quarterly premium is increasing to $600 beginning the first quarter of next year. Your equipment expense will not change, but the amortization schedule on your current loan indicates that interest expense for next year should be $9,000.

a. Using this data, construct an actual income statement for this year and a pro forma income statement for next year.

b. By what percentage did your net income change?

c. What are your current profit margin and your pro forma profit margin?

d. In your business, assets and liabilities have historically varied with sales. Assets are usually 80 percent of sales, and liabilities are usually 55 percent of sales. You anticipate that you will have no owner payout of net profit. Using the percentage of sales method, determine if any additional financing is needed for your business next year.

Explanation / Answer

Answer:a

Answer:b Net income Change=(11220/18100)*100=61.99%

Net profit will increase from $18,100 to $29,320, an increase of $11,220 or 61.99%

Answer:c

Profit margin=(!8100/200000)*100=9.05%

First year Forecasted Particulars Amount ($) Amount ($) Sales 200000 240000 Less: COGS 140000 168000 Gross Profit 60000 72000 Rent 18000 18540 Utilities 8400 9240 Insurance 2000 2400 dep on equipment 3500 3500 Interest 10000 9000 Net income 18100 29320

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