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lop executive officers of Jordan Company, a merchandising firm, are preparing the next year's budget. The controller has provide veryone with the current year's projected income statement. Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income Current Year $1,900,000 1,330,000 570,000 250,000 $ 320,000 Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales fixed cost of $60,000. The president has announced that the company's goal is to increase net income by 15 percent.

lop executive officers of Jordan Company, a merchandising firm, are preparing the next year's budget. The controller has provide veryone with the current year's projected income statement. Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income Current Year $1,900,000 1,330,000 570,000 250,000 $ 320,000 Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales fixed cost of $60,000. The president has announced that the company's goal is to increase net income by 15 percent.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Top executive officers of Jordan Company, a merchandising firm, are preparing the next year's budget. The controller has provided everyone with the current year's projected income statement. Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income Current Year $1,900,000 1,330,000 570,000 250,000 $ 320,000 Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $60,000. The president has announced that the company's goal is to increase net income by 15 percent. Required The following items are independent of each other: a. Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal? b. The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production manager believes that an improved production procedure can cut cost of goods sold by 1 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income. c. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $349,000. With the increased advertising, the company expects sales revenue to increase by 15 percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the company reach its goal?
Transcribed Image Text:Top executive officers of Jordan Company, a merchandising firm, are preparing the next year's budget. The controller has provided everyone with the current year's projected income statement. Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income Current Year $1,900,000 1,330,000 570,000 250,000 $ 320,000 Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $60,000. The president has announced that the company's goal is to increase net income by 15 percent. Required The following items are independent of each other: a. Prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal? b. The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production manager believes that an improved production procedure can cut cost of goods sold by 1 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income. c. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $349,000. With the increased advertising, the company expects sales revenue to increase by 15 percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the company reach its goal?
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