P22-55B Using sensitivity analysis Holly Company prepared the following budgeted income statement for the first quarter of 2018: HOLLY COMPANY Budgeted Income Statement For the Quarter Ended March 31, 2018 Total March January February Net Sales Revenue $ 11,520 $ 29,120 Cost of Goods Sold (40% of sales) (20% increase per month) $ 8,000 $ 9,600 4,608 11,648 3,200 3,840 Gross Profit 6,912 17,472 4,800 5,760 S&A Expenses ($2,000 + 10% of sales) 2,800 2,960 3,152 8,912 Operating Income 2,000 2,800 3,760 8,560 Income Tax Expense (30% of operating income) 840 1,128 2,568 600 Net Income $ 1,400 $ 1,960 $ 2,632 $ 5,992 Holly Company is considering two options. Option 1 is to increase advertising by $700 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 45% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 30% per month rather than 20%. Requirements 1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain $8,000. Round all calculations to the nearest dollar. 2. Which option should Holly choose? Explain your reasoning.
P22-55B Using sensitivity analysis Holly Company prepared the following budgeted income statement for the first quarter of 2018: HOLLY COMPANY Budgeted Income Statement For the Quarter Ended March 31, 2018 Total March January February Net Sales Revenue $ 11,520 $ 29,120 Cost of Goods Sold (40% of sales) (20% increase per month) $ 8,000 $ 9,600 4,608 11,648 3,200 3,840 Gross Profit 6,912 17,472 4,800 5,760 S&A Expenses ($2,000 + 10% of sales) 2,800 2,960 3,152 8,912 Operating Income 2,000 2,800 3,760 8,560 Income Tax Expense (30% of operating income) 840 1,128 2,568 600 Net Income $ 1,400 $ 1,960 $ 2,632 $ 5,992 Holly Company is considering two options. Option 1 is to increase advertising by $700 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 45% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 30% per month rather than 20%. Requirements 1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain $8,000. Round all calculations to the nearest dollar. 2. Which option should Holly choose? Explain your reasoning.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 4RE: Refer to RE22-2. Assume Heller Company had sales revenue of 510,000 in 2019 and 650,000 in 2020....
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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