Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Vanhorn Corporation has three divisions, each operating as a responsibility center. To provide an incentive for divisional executive officers, the company gives divisional management a
Vanhorn Corporation has three divisions, each operating as a responsibility center. To provide an incentive for divisional executive officers, the company gives divisional management a bonus equal to 20 percent of the excess of actual net income over budgeted net income. The following is Dancy Divisions current years performance. Current Year Sales revenue $4,500,000 Cost of goods sold 2,700,000 Gross profit 1,800,000 Selling & admin. expenses 900,000 Net income $ 900,000 The president has just received next years budget proposal from the vice president in charge of Dancy Division. The proposal budgets a 5 percent increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled. Dancy has enjoyed revenue growth of around 10 percent for each of the past five years. The president had consistently approved the divisions budget proposals based on 5 percent growth in the past. This time, the president wants to show that he is not a fool. I will impose a 15 percent revenue increase to teach them a lesson! the president says to himself smugly. Assume that cost of goods sold and selling and administrative expenses remain stable in proportion to sales. Required a. Prepare the budgeted income statement based on Dancy Divisions proposal of a 5 percent increase. b. If growth is actually 10 percent as usual, how much bonus would Dancy Divisions executive officers receive if the president had approved the divisions proposal? c. Prepare the budgeted income statement based on the 15 percent increase the president imposed. d. If the actual results turn out to be a 10 percent increase as usual, how much bonus would Dancy Divisions executive officers receive since the president imposed a 15 percent increase? e. Propose a better budgeting procedure for Vanhorn
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started