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: First Quarter Second Quarter Third Quarter Fourth Quarter Total Sales revenue $ 181,000 $ 211,000 $ 221,000 $ 271,000 $ 884,000 Cost of goods sold 108,600 126,600 132,600 162,600 530,400 Gross profit 72,400 84,400 88,400 108,400 353,600 Selling & administrative expenses 18,100 21,100 22,100 27,100 88,400 Net income $ 54,300 $ 63,300 $ 66,300 $ 81,300 $ 265,200 Historically, cost of goods sold is about 60 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 Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’ estimate.
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.
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:
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
| Sales revenue | $ | 181,000 | $ | 211,000 | $ | 221,000 | $ | 271,000 | $ | 884,000 | |||||||||
| Cost of goods sold | 108,600 | 126,600 | 132,600 | 162,600 | 530,400 | ||||||||||||||
| Gross profit | 72,400 | 84,400 | 88,400 | 108,400 | 353,600 | ||||||||||||||
| Selling & administrative expenses | 18,100 | 21,100 | 22,100 | 27,100 | 88,400 | ||||||||||||||
| Net income | $ | 54,300 | $ | 63,300 | $ | 66,300 | $ | 81,300 | $ | 265,200 | |||||||||
Historically, cost of goods sold is about 60 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
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Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate.
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Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’ estimate.
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