Top executive officers of Baird Company, a merchandising firm, are preparing the next years budget. The controller has provided everyone with the current years projected income statement. Current Year Sales revenue $ 2,300,000 Cost of goods sold 1,725,000 Gross profit 575,000 Selling & administrative expenses 304,000 Net income $ 271,000 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.

. 1. 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. Using Excel 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.