Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The Income statements for the last four quarters follow: Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income First Quarter $ 175,000 (122,500) 52,500 (17,500) $ 35,000 Second Quarter $ 205,000 (143,500) 61,500 (20,500) $ 41,000 Third Quarter $ 215,000 (150.500) 64,500 (21,500) $ 43,000 Fourth Quarter $ 265,000 (185,500) 79,500 (26,500) $ 53,000 Total $ 860,000 (602,000) 258,000 (86,000) $ 172,000 Historically, cost of goods sold is about 70 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue. Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 15 percent for each respective quarter above last year's level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 10 percent. Required a. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada's estimate. b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks' estimate.
Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The Income statements for the last four quarters follow: Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income First Quarter $ 175,000 (122,500) 52,500 (17,500) $ 35,000 Second Quarter $ 205,000 (143,500) 61,500 (20,500) $ 41,000 Third Quarter $ 215,000 (150.500) 64,500 (21,500) $ 43,000 Fourth Quarter $ 265,000 (185,500) 79,500 (26,500) $ 53,000 Total $ 860,000 (602,000) 258,000 (86,000) $ 172,000 Historically, cost of goods sold is about 70 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue. Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 15 percent for each respective quarter above last year's level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 10 percent. Required a. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada's estimate. b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks' estimate.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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Transcribed Image Text:Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The Income statements for
the last four quarters follow:
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
First Quarter
$ 175,000
(122,500)
52,500
(17,500)
$ 35,000
Second Quarter
$ 205,000
(143,500)
61,500
(20,500)
$ 41,000
Third Quarter
$ 215,000
(150,500)
64,500
(21,500)
$ 43,000
Fourth Quarter
$ 265,000
(185,500)
79,500
(26,500)
$ 53,000
Total
$ 860,000
(602,000)
258,000
(86,000)
$ 172,000
Historically, cost of goods sold is about 70 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales
revenue.
Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 15 percent for each respective quarter
above last year's level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 10
percent.
Required
a. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada's estimate.
b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks' estimate.
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