Top executive officers of Tildon 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 Cost of goods sold Gross profit Selling & administrative expenses $1,600,000 1,120,000 480,000 190,000 Net income 290,000 Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $30,000. The president has announced that the company's goal is to increase net income by 15 percent. Required The following items are independent of each other: a. Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal? 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 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income. c. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $230,000. 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. Prepare a pro forma income statement. Will the company reach its goal?
Top executive officers of Tildon 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 Cost of goods sold Gross profit Selling & administrative expenses $1,600,000 1,120,000 480,000 190,000 Net income 290,000 Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $30,000. The president has announced that the company's goal is to increase net income by 15 percent. Required The following items are independent of each other: a. Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal? 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 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income. c. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $230,000. 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. Prepare a pro forma income statement. Will the company reach its goal?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter8: Budgeting For Planning And Control
Section: Chapter Questions
Problem 10CE: Coral Seas Jewelry Company makes and sells costume jewelry. For the coming year, Coral Seas expects...
Related questions
Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
100%
Transcribed Image Text:Top executive officers of Tildon 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
$1,600,000
1,120,000
480,000
190,000
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
290,000
Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus
a fixed cost of $30,000. The president has announced that the company's goal is to increase net income by 15 percent.
Required
The following items are independent of each other:
a. Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal?
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 percent. Prepare a pro forma income
statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling &
administrative expenses to achieve the budgeted net income.
c. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and
administrative expenses to $230,000. 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. Prepare a pro forma income statement. Will the
company reach its goal?
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal?
(Round "Percentage increase" to 2 decimal places. (i.e., .2345 should be entered as 23.45).)
TILDON COMPANY
Pro Forma Income Statement
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
$
Percentage increase
%
< Required A
Required B
>
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT