Sales revenue $ 2,320,000 Cost of goods sold 1,740,000 Gross profit 580,000 Selling administrative expenses 306,000 Net income $ 274,000 Cost of goods sold is usually 75 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $74,000 The president has announced that the companys goal is to increase net income by 15 percent Required The following items are independent of each other Prepare a pro forma income statement What percentage increase in sales would enable the company to reach its goal 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 1 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 The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $342,000 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

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 18, 2024

Sales revenue $ 2,320,000 Cost of goods sold 1,740,000 Gross profit 580,000 Selling & administrative expenses 306,000 Net income $ 274,000 Cost of goods sold

Sales revenue	$	2,320,000
Cost of goods sold		1,740,000
Gross profit		580,000
Selling & administrative expenses		306,000
Net income	$	274,000

Cost of goods sold is usually 75 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $74,000. The president has announced that the companys goal is to increase net income by 15 percent.

Required

The following items are independent of each other:

Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal?
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 1 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.
The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $342,000. 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?