
a)
Determine the percentage increase in sales and prepare the pro forma income statement.
a)

Explanation of Solution
The formula to calculate the percentage of increase in sales:
Compute net income:
Excel workings:
Table (1)
Excel spread sheet:
Table (2)
Compute the sales value:
Consider sales as X:
Hence, sales are $1,817,500.
Compute selling and administration expenses:
Hence, the selling and administration expenses are $211,750.
Prepare a pro forma income statement:
Table (3)
Hence, the net income is $333,500.
Compute the percentage of increase in sales:
Hence, the percentage of increase in sales is 13.59%.
b)
Prepare the pro forma income statement and the other ideas to reach the Company T’s goal.
Given information:
Discount rate of 2% on COGS
b)

Explanation of Solution
Compute the COGS:
Excel workings:
Table (4)
Excel spread sheet:
Table (5)
Hence, the COGS are $1,097,600.
Compute the selling and administration expenses:
Consider selling and administration expenses as X:
Hence, selling and administration expenses are $168,900.
Prepare a pro forma income statement:
Excel spreadsheet:
Table (6)
Hence, the net income is $333,500.
The management cuts the selling and administrative expenses by the amount of $21,100 that is
c)
Whether the company can reach the goal of Company T
c)

Explanation of Solution
Compute projected sales:
Hence, the projected sales are $1,840,000.
Compute the projected cost of goods sold:
Hence, the projected cost of goods sold is $1,288,000.
Prepare a pro forma income statement:
Excel spreadsheet:
Table (7)
Hence, the net income is $322,000.
The company cannot reach the goal as the desired profit is less than the actual that is $322,000 is less than the $333,500.
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Chapter 14 Solutions
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