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Trophy Company prepared the follwing budgeted income statement for the first quarter of 2019: Sales Revenue (15% increase per month) Cost of Goods Sold (45%
Trophy Company prepared the follwing budgeted income statement for the first quarter of 2019: Sales Revenue (15% increase per month) Cost of Goods Sold (45% of Sales) Gross Profit Selling & Admin Expenses ($2,500+9% of Sales) Operating Income (Before Taxes) Income Tax Expense (25% of Operating Income) Net Income January $30,000 $13,500 $16,500 $5,200 $11,300 $2,825 $8,475 February $34,500 $15,525 $18,975 $5,605 $13,370 $3,343 $10,028 March $39,675 $17,854 $21,821 $6,071 $15,751 $3,938 $11,813 Trophy Company is considering two options. Option 1 is to increase advertising by $800 per month. Option 2 seeks better production materials which will increase Cost of Goods Sold to 48% of Sales. Management projects each of these will increase sales by 22% per month rather than 15%. materials company is increases cost of cotidis sold tio 43s te sales sa Required: 1. Prepare Budgeted Income Statements for both Options, assuming both options begin in January. January sales will remain at $30,000. 2. Which option should Trophy Company choose? Explain your answer. Trophy Company Pro Forma Income Statement Quarter Ended March 31, 2019 January February March Total Sales Revenue Cost of Goods Sold Gross Profit S & A Expenses Operating Income Income Tax Expense Net Income Trophy Company Pro Forma Income Statement Quarter Ended March 31, 2019 January February March Total Sales Revenue Cost of Goods Sold Gross Profit S & A Expenses Operating Income Income Tax Expense Net Income Which option is best? Explain your
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