Rundle Corporation has three divisions, each operating as a responsibility center. To provide an incentive for divisional executive officers, the company gives divisional management a bonus equal to 19 percent of the excess of actual net income over budgeted net income. The following is Atlantic Division's current year's performance. Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income Current Year $4,070,000 2,460,000 1,610,000 820,000 $ 790,000 The president has just received next year's budget proposal from the vice president in charge of Atlantic Division. The proposal budgets a 6 percent increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled. Atlantic has enjoyed revenue growth of around 11 percent for each of the past five years. The president had consistently approved the division's budget proposals based on 6 percent growth in the past. This time, the president wants to show that he is not a fool. "I will impose a 16 percent revenue increase to teach them a lesson!" the president says to himself smugly. Assume that cost of goods sold and selling and administrative expenses remain stable in proportion to sales. Required a. Prepare the budgeted income statement based on Atlantic Division's proposal of a 6 percent increase. b-1. Prepare income statement with 11 percent growth. b-2. If growth is actually 11 percent as usual, how much bonus would Atlantic Division's executive officers receive if the president had approved the division's proposal? c. Prepare the budgeted income statement based on the 16 percent increase the president imposed. d. If the actual results turn out to be a 11 percent increase as usual, how much bonus would Atlantic Division's executive officers receive since the president imposed a 16 percent increase?
Rundle Corporation has three divisions, each operating as a responsibility center. To provide an incentive for divisional executive officers, the company gives divisional management a bonus equal to 19 percent of the excess of actual net income over budgeted net income. The following is Atlantic Division's current year's performance. Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income Current Year $4,070,000 2,460,000 1,610,000 820,000 $ 790,000 The president has just received next year's budget proposal from the vice president in charge of Atlantic Division. The proposal budgets a 6 percent increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled. Atlantic has enjoyed revenue growth of around 11 percent for each of the past five years. The president had consistently approved the division's budget proposals based on 6 percent growth in the past. This time, the president wants to show that he is not a fool. "I will impose a 16 percent revenue increase to teach them a lesson!" the president says to himself smugly. Assume that cost of goods sold and selling and administrative expenses remain stable in proportion to sales. Required a. Prepare the budgeted income statement based on Atlantic Division's proposal of a 6 percent increase. b-1. Prepare income statement with 11 percent growth. b-2. If growth is actually 11 percent as usual, how much bonus would Atlantic Division's executive officers receive if the president had approved the division's proposal? c. Prepare the budgeted income statement based on the 16 percent increase the president imposed. d. If the actual results turn out to be a 11 percent increase as usual, how much bonus would Atlantic Division's executive officers receive since the president imposed a 16 percent increase?
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter24: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 8E: Rocky Mountain Airlines Inc. has two divisions organized as profit centers, the Passenger Division...
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Transcribed Image Text:Rundle Corporation has three divisions, each operating as a responsibility center. To provide an incentive for divisional executive
officers, the company gives divisional management a bonus equal to 19 percent of the excess of actual net income over budgeted net
income. The following is Atlantic Division's current year's performance.
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
Current Year
$4,070,000
2,460,000
1,610,000
820,000
$ 790,000
The president has just received next year's budget proposal from the vice president in charge of Atlantic Division. The proposal
budgets a 6 percent increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled.
Atlantic has enjoyed revenue growth of around 11 percent for each of the past five years. The president had consistently approved the
division's budget proposals based on 6 percent growth in the past. This time, the president wants to show that he is not a fool. "I will
impose a 16 percent revenue increase to teach them a lesson!" the president says to himself smugly.
Assume that cost of goods sold and selling and administrative expenses remain stable in proportion to sales.
Required
a. Prepare the budgeted income statement based on Atlantic Division's proposal of a 6 percent increase.
b-1. Prepare income statement with 11 percent growth.
b-2. If growth is actually 11 percent as usual, how much bonus would Atlantic Division's executive officers receive if the president had
approved the division's proposal?
c. Prepare the budgeted income statement based on the 16 percent increase the president imposed.
d. If the actual results turn out to be a 11 percent increase as usual, how much bonus would Atlantic Division's executive officers
receive since the president imposed a 16 percent increase?
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