Preparing pro forma income statements with different

Reference no: EM13600033

Preparing Pro Forma Income Statements with Different Assumptions.Top executive officers of Leach 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 $2,600,000
Cost of goods sold 1,690,000
Gross Profit 910,000
Selling & admin. Expenses 325,000
Net income $ 585,000

Cost of goods sold is usually 65% of sales revenue, and selling and administrative expenses are usually 10 % of sales plus a fixed cost of $65,000. The president has announced that the company's goal is to increase net income by 15 %.

Required:
The following items are independent of each other.
a. What percentage increase in sales would enable the company to reach its goal? Support your answer with a pro forma income statement.
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%. What else can the company do to reach its goal? Prepare a pro forma income statement illustrating your proposal.
c. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $405,000. With the increased advertising, the company expects sales revenue to increase by 15%. Assume that cost of goods sold remains a constant proportion of sales. Can the company reach its goal?

Reference no: EM13600033

Questions Cloud

Calculate the difference between cost of goods manufactured : gravois inc. incurred the following costs during june selling expenses . . . . . . . . . . . . . . . . . . . . . . . .

The maintenance departments costs are allocated to other : the maintenance departments costs are allocated to other departments based on the number of hours of maintenance use by

Compare the mix of assets liabilities capital revenue and : a useful tool in financial statement analysis is the common-size financial statement. what does this tool enable the

The laramie factory produces expensive boots it has two : the laramie factory produces expensive boots. it has two departments that process all the items. during january the

Preparing pro forma income statements with different : preparing pro forma income statements with different assumptions.top executive officers of leach company a

Cowley county hospital uses a job-costing system for all : cowley county hospital uses a job-costing system for all patients who have surgery. in march the pre-operating room

What is cost of goods sold for 2012 d what amount of : hammer inc. had the following activities during 2012 direct materials beginning

Breaky company is launching a new cleaning product for : breaky company is launching a new cleaning product for ceramic vases. the company invests 2900000 in operating assets

Jacobs company manufactures refrigerators the company uses : jacobs company manufactures refrigerators. the company uses a budgeted indirect-cost rate for its manufacturing

User Account

All Pages