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Business
Accounting
Net Profit

Net Profit

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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PROBLEM: The CFO of Melbourne Ltd presented the following income Statement for the year ending June 30, 19A, to the board of Directors: Rs. Rs. 18,000,000 Sales Cost of Goods Sold Direct Material 5,700,000 4,350,000 3,675,000 Direct Labor FOH 13,725,000 4,275,000 Gross Profit Operating Expenses Admin Expenses Selling Expenses Operating Income Income Tax @ 30% 2,025,000 1,500,000 3,525,000 225,000 525,000 Net Profit The board discusses the ratio of Net Profit to sales and decided that for the year ending June 30, 19B, an increase of at least 30% is required in Net profit. While the sales volume is expected to increase by 25%, all costs and expenses point to considerable increase in costs; e.g. direct material , 7%; direct labour, 10%; Factory overhead 5% ; Operating expenses 8%. The increase in FOH will apply to only variable portion which is 1,500,000. As for as Operating expenses are concerned, volume is expected to cause increase in only Selling Expense. Income tax rate for year 19B is expected to be 25%. Prepare forecasted Income Statement for the year ends on June 30, 19B incorporating all above stated items.
Transcribed Image Text:PROBLEM: The CFO of Melbourne Ltd presented the following income Statement for the year ending June 30, 19A, to the board of Directors: Rs. Rs. 18,000,000 Sales Cost of Goods Sold Direct Material 5,700,000 4,350,000 3,675,000 Direct Labor FOH 13,725,000 4,275,000 Gross Profit Operating Expenses Admin Expenses Selling Expenses Operating Income Income Tax @ 30% 2,025,000 1,500,000 3,525,000 225,000 525,000 Net Profit The board discusses the ratio of Net Profit to sales and decided that for the year ending June 30, 19B, an increase of at least 30% is required in Net profit. While the sales volume is expected to increase by 25%, all costs and expenses point to considerable increase in costs; e.g. direct material , 7%; direct labour, 10%; Factory overhead 5% ; Operating expenses 8%. The increase in FOH will apply to only variable portion which is 1,500,000. As for as Operating expenses are concerned, volume is expected to cause increase in only Selling Expense. Income tax rate for year 19B is expected to be 25%. Prepare forecasted Income Statement for the year ends on June 30, 19B incorporating all above stated items.
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