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 FourthQuarter Total Sales Revenue $ 186,000 $ 216,000 $ 226,000 $ 276,000 $904,000 Cost of goods sold 130,200 151,200 158,200 193,200 632,800 Gross profit 55,800 64,800 67,800 82,800 271,200 Selling & Administrating Expenses 18,600 21,600 22,600 27,600 90,400 Net income $ 37,200 $ 43,200 $ 45,200 $ 55,200 $180,800 Historically, the 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: 1) Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate. 2) Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’ estimate. A) Sales revenue ---------- First quarter ------------ Second quater -------------- second quarter ---------- fourth quarter ---- cost of goods sold ----------- the First quarter----------second quarter------------Third quarter--------------fourth quarter Gross Profit------------------ Fourth quarter-------- Second quater----------Third quater------------- Fourth quarter Selling & administrative expenses--------First quarter-----------second quarter-----------Third quarter------fourth quarter Net Income------- First quater-------------- Second quater------------------Third quarter--------- Fourth quater B) Sales revenue ---------- First quarter ------------ Second quater -------------- second quarter ---------- fourth quarter ---- cost of goods sold ----------- the First quarter----------second quarter------------Third quarter--------------fourth quarter Gross Profit------------------ Fourth quarter-------- Second quater----------Third quater------------- Fourth quarter Selling & administrative expenses--------First quarter-----------second quarter-----------Third quarter------fourth quarter Net Income------- First quater-------------- Second quater------------------Third quarter--------- Fourth quater
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 | FourthQuarter | Total | |
| Sales Revenue | $ 186,000 | $ 216,000 | $ 226,000 | $ 276,000 | $904,000 |
| Cost of goods sold | 130,200 | 151,200 | 158,200 | 193,200 | 632,800 |
| Gross profit | 55,800 | 64,800 | 67,800 | 82,800 | 271,200 |
| Selling & Administrating Expenses | 18,600 | 21,600 | 22,600 | 27,600 | 90,400 |
| Net income | $ 37,200 | $ 43,200 | $ 45,200 | $ 55,200 | $180,800 |
Historically, the 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:
1) Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate.
2) Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’ estimate.
A) Sales revenue ---------- First quarter ------------ Second quater -------------- second quarter ---------- fourth quarter ----
cost of goods sold ----------- the First quarter----------second quarter------------Third quarter--------------fourth quarter
Gross Profit------------------ Fourth quarter-------- Second quater----------Third quater------------- Fourth quarter
Selling & administrative expenses--------First quarter-----------second quarter-----------Third quarter------fourth quarter
Net Income------- First quater-------------- Second quater------------------Third quarter--------- Fourth quater
B) Sales revenue ---------- First quarter ------------ Second quater -------------- second quarter ---------- fourth quarter ----
cost of goods sold ----------- the First quarter----------second quarter------------Third quarter--------------fourth quarter
Gross Profit------------------ Fourth quarter-------- Second quater----------Third quater------------- Fourth quarter
Selling & administrative expenses--------First quarter-----------second quarter-----------Third quarter------fourth quarter
Net Income------- First quater-------------- Second quater------------------Third quarter--------- Fourth quater
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