Chapter 20, Problem 2BTN

1.

To determine

To identify: Prior three years’ sales and total selling expenses and general and administrative expenses.

Explanation of Solution

A Company
Particulars	2013 Amount ($)	2014 Amount ($)	2015 Amount ($)
Net sales	170,910,000	182,795,000	233,715,000
Selling, general and administrative expenses	4,475,000	6,041,000	8,067,000
Table (1)

G Company
Particulars	2013 Amount ($)	2014 Amount ($)	2015 Amount ($)
Net sales	55,519,000	66,001,000	74,989,000
Selling expenses	6,554,000	8,131,000	9,047,000
General and administrative expenses	4,432,000	5,851,000	6,136,000
Total Selling, general and administrative expenses	10,986,000	13,982,000	15,183,000
Table (2)

2.

To determine

The ratio of total selling expenses and general and administrative expenses to sales for each of the three years.

Explanation of Solution

Formula to calculate ratio between SGA and net sales is,

$\text{Ratio between SGA and Net sales}=\left(\frac{\text{SGA expenses}}{\text{Net sales}}\right)$ …..(1)

For A company:

Year 2013

Substitute $4,475,000 for SGA expenses and $170,910,000 for net sales in equation (1).

$\begin{array}{c}\text{Ratio between SGA and Net sales}=\left(\frac{\$4,475,000}{\$170,910,000}\right)\\ =0.0261:1\end{array}$

Year 2014

Substitute $6,041,000 for SGA expenses and $182,795,000 for net sales in equation (1).

$\begin{array}{c}\text{Ratio between SGA and Net sales}=\left(\frac{\$6,041,000}{\$182,795,000}\right)\\ =0.0330:1\end{array}$

Year 2015

Substitute $8,067,000 for SGA expenses and $233,715,000 for net sales in equation (1).

$\begin{array}{c}\text{Ratio between SGA and Net sales}=\left(\frac{\$8,067,000}{\$233,715,000}\right)\\ =0.0345:1\end{array}$

For G company:

Year 2013

Substitute $10,986,000 for SGA expenses and $55,519,000 for net sales in equation (1).

$\begin{array}{c}\text{Ratio between SGA and Net sales}=\left(\frac{\$10,986,000}{\$55,519,000}\right)\\ =0.1978:1\end{array}$

Year 2014

Substitute $13,982,000 for SGA expenses and $66,001,000 for net sales in equation (1).

$\begin{array}{c}\text{Ratio between SGA and Net sales}=\left(\frac{\$13,982,000}{\$66,001,000}\right)\\ =0.2118:1\end{array}$

Year 2015

Substitute $13,479,000 for SGA expenses and $74,989,000 for net sales in equation (1).

$\begin{array}{c}\text{Ratio between SGA and Net sales}=\left(\frac{\$13,479,000}{\$74,989,000}\right)\\ =0.1797:1\end{array}$

3.

To determine

Predictions for both companies’ total selling expenses and general and expenses for the next two years.

Explanation of Solution

A Company
Particulars	2013 Amount ($)	2014 Amount ($)	2015 Amount ($)	Increase in Amount from 2014 to 2015 ($)
Net sales	170,910,000	182,795,000	233,715,000	50,920,000
Selling, general and administrative expenses	4,475,000	6,041,000	8,067,000	2,026,000
Table (3)

Formula to calculate incremental percentage in net sales each year is,

$\text{Incremental percentage in net sales}=\left[\frac{\text{Increase in net sales}}{\text{Net sales}}\right]\times 100$

Substitute $50,920,000 for increase in net sales and $233,715,000 for net sales.

$\begin{array}{c}\text{Incremental percentage in net sales}=\left[\frac{\$50,920,000}{\$233,715,000}\right]\times 100\\ =21.78\%\end{array}$

Formula to calculate next 2 years’ net sales is,

$\text{Next year’s net sales}=\text{Previous year's net sales }\times \text{1}21.78\%$

Formula to calculate next 2 years’ SGA expenses is,

$\text{Total SGA expenses}=\text{Net sales}\times \text{Ratio between SGA and net sales}$

Year 2016

Substitute $233,715,000 for net sales.

$\begin{array}{c}\text{2016 net sales}=\$233,715,000\times \text{1}21.78\%\\ =\$284,618,127\end{array}$

Substitute 0.0345:1 for the ratio between selling, general and administrative expenses and net sales.

$\begin{array}{c}\text{Total SGA expenses}=\$284,618,127\times 0.0345\\ =\$9,819,325\end{array}$

Year 2017

Substitute $284,618,127 for net sales.

$\begin{array}{c}\text{2017 net sales}=\$284,618,127\times \text{1}21.78\%\\ =\$346,607,955\end{array}$

Substitute 0.0345:1 for the ratio between selling, general and administrative expenses and net sales.

$\begin{array}{c}\text{Total SGA expenses}=\$346,607,955\times 0.0345\\ =\$11,957,974\end{array}$

Hence, predictions for A companies’ total selling expenses and general and expenses for the next two years is $9,819,325 and $11,957,974.

G Company
Particulars	2013 Amount ($)	2014 Amount ($)	2015 Amount ($)	Increase in Amount from 2014 to 2015 ($)
Net sales	55,519,000	66,001,000	74,989,000	8,988,000
Total Selling, general and administrative expenses	10,986,000	13,982,000	15,183,000	1,201,000
Table (4)

Formula to calculate incremental percentage in net sales each year is,

$\text{Incremental percentage in net sales}=\left[\frac{\text{Increase in net sales}}{\text{Net sales}}\right]\times 100$

Substitute $8,988,000 for increase in net sales and $74,989,000 for net sales.

$\begin{array}{c}\text{Incremental percentage in net sales}=\left[\frac{\$8,988,000}{\$74,989,000}\right]\\ =11.98\%\end{array}$

Formula to calculate next 2 years’ net sales is,

$\text{Next year’s net sales}=\text{Previous year's net sales }\times \text{1}21.78\%$

Formula to calculate next 2 years’ SGA expenses is,

$\text{Total SGA expenses}=\text{Net sales}\times \text{Ratio between SGA and net sales}$

Year 2016

Substitute $74,989,000 for net sales.

$\begin{array}{c}\text{Next year’s net sales}=\$74,989,000\times 111.98\%\\ =\$83,972,682\end{array}$

Substitute 0.1797:1 for the ratio between selling, general and administrative expenses and net sales.

$\begin{array}{c}\text{Total SGA expenses}=\$83,972,682\times 0.1797\\ =\$15,089,891\end{array}$

Year 2017

Substitute $83,972,682 for net sales.

$\begin{array}{c}\text{Next year’s net sales}=\$83,972,682\times 111.98\%\\ =\$94,032,609\end{array}$

Substitute 0.1797:1 for the ratio between selling, general and administrative expenses and net sales.

$\begin{array}{c}\text{Total SGA expenses}=\$94,032,609\times 0.1797\\ =\$16,897,660\end{array}$

Hence, predictions for G companies’ total selling expenses and general and expenses for the next two years is $15,089,891 and $16,897,660.