officers, the company gives divisional management a bonus equal to 15 percent of the excess of actual net income over budgeted net income. The following is Atlantic Division's current year's performance. Current Year $1,000,000 625,000 375,000 225,000 Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income $ 150,000 The president has just received next year's budget proposal from the vice president in charge of Atlantic Division. The proposal budgets a 5 percent increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled. Atlantic has enjoyed revenue growth of around 10 percent for each of the past five years. The president had consistently approved the division's budget proposals based on 5 percent growth in the past. This time, the president wants to show that he is not a fool. "I will impose a 15 percent revenue increase to teach them a lesson!" the president says to himself smugly. Assume that cost of goods sold and selling and administrative expenses remain stable in proportion to sales. Required a. Prepare the budgeted income statement based on Atlantic Division's proposal of a 5 percent increase. b-1. Prepare income statement with 10 percent growth. b-2. If growth is actually 10 percent as usual, how much bonus would Atlantic Division's executive officers receive if the president had approved the division's proposal? c. Prepare the budgeted income statement based on the 15 percent increase the president imposed.
officers, the company gives divisional management a bonus equal to 15 percent of the excess of actual net income over budgeted net income. The following is Atlantic Division's current year's performance. Current Year $1,000,000 625,000 375,000 225,000 Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income $ 150,000 The president has just received next year's budget proposal from the vice president in charge of Atlantic Division. The proposal budgets a 5 percent increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled. Atlantic has enjoyed revenue growth of around 10 percent for each of the past five years. The president had consistently approved the division's budget proposals based on 5 percent growth in the past. This time, the president wants to show that he is not a fool. "I will impose a 15 percent revenue increase to teach them a lesson!" the president says to himself smugly. Assume that cost of goods sold and selling and administrative expenses remain stable in proportion to sales. Required a. Prepare the budgeted income statement based on Atlantic Division's proposal of a 5 percent increase. b-1. Prepare income statement with 10 percent growth. b-2. If growth is actually 10 percent as usual, how much bonus would Atlantic Division's executive officers receive if the president had approved the division's proposal? c. Prepare the budgeted income statement based on the 15 percent increase the president imposed.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:AMnerst CorpolatioIT TIaS tiimee uivisionS, eacii opelating as dTesponSIDIity cenIlei, 10 proViue dii imcentive ioi uIVISIOndi execulive
officers, the company gives divisional management a bonus equal to 15 percent of the excess of actual net income over budgeted net
income. The following is Atlantic Division's current year's performance.
Current Year
$1,000,000
625,000
375,000
225,000
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
$
150,000
The president has just received next year's budget proposal from the vice president in charge of Atlantic Division. The proposal
budgets a 5 percent increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled.
Atlantic has enjoyed revenue growth of around 10 percent for each of the past five years. The president had consistently approved the
division's budget proposals based on 5 percent growth in the past. This time, the president wants to show that he is not a fool. "I will
impose a 15 percent revenue increase to teach them a lesson!" the president says to himself smugly.
Assume that cost of goods sold and selling and administrative expenses remain stable in proportion to sales.
Required
a. Prepare the budgeted income statement based on Atlantic Division's proposal of a 5 percent increase.
b-1. Prepare income statement with 10 percent growth.
b-2. If growth is actually 10 percent as usual, how much bonus would Atlantic Division's executive officers receive if the president had
approved the division's proposal?
c. Prepare the budgeted income statement based on the 15 percent increase the president imposed.
d. If the actual results turn out to be a 10 percent increase as usual, how much bonus would Atlantic Division's executive officers
receive since the president imposed a 15 percent increase?
Complete this question by entering your answers in the tabs below.
Req A
Req B1
Req B2
Req C and D
Prepare the budgeted income statement based on Atlantic Division's proposal of a 5 percent increase.
AMHERST CORPORATION
Budgeted Income Statement
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
$
Req A
Req B1 >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education