Concept explainers
1.
To identify: Prior three years’ sales and total selling expenses and general and administrative expenses.
1.

Explanation of Solution
A Company | |||
Particulars | 2013 Amount ($) | 2014 Amount ($) | 2015 Amount ($) |
Net sales | 170,910,000 | 182,795,000 | 233,715,000 |
Selling, general and administrative expenses | 4,475,000 | 6,041,000 | 8,067,000 |
Table (1) |
G Company | |||
Particulars | 2013 Amount ($) | 2014 Amount ($) | 2015 Amount ($) |
Net sales | 55,519,000 | 66,001,000 | 74,989,000 |
Selling expenses | 6,554,000 | 8,131,000 | 9,047,000 |
General and administrative expenses | 4,432,000 | 5,851,000 | 6,136,000 |
Total Selling, general and administrative expenses | 10,986,000 | 13,982,000 | 15,183,000 |
Table (2) |
2.
The ratio of total selling expenses and general and administrative expenses to sales for each of the three years.
2.

Explanation of Solution
Formula to calculate ratio between SGA and net sales is,
For A company:
Year 2013
Substitute $4,475,000 for SGA expenses and $170,910,000 for net sales in equation (1).
Year 2014
Substitute $6,041,000 for SGA expenses and $182,795,000 for net sales in equation (1).
Year 2015
Substitute $8,067,000 for SGA expenses and $233,715,000 for net sales in equation (1).
For G company:
Year 2013
Substitute $10,986,000 for SGA expenses and $55,519,000 for net sales in equation (1).
Year 2014
Substitute $13,982,000 for SGA expenses and $66,001,000 for net sales in equation (1).
Year 2015
Substitute $13,479,000 for SGA expenses and $74,989,000 for net sales in equation (1).
3.
Predictions for both companies’ total selling expenses and general and expenses for the next two years.
3.

Explanation of Solution
A Company | ||||
Particulars | 2013 Amount ($) | 2014 Amount ($) | 2015 Amount ($) | Increase in Amount from 2014 to 2015 ($) |
Net sales | 170,910,000 | 182,795,000 | 233,715,000 | 50,920,000 |
Selling, general and administrative expenses | 4,475,000 | 6,041,000 | 8,067,000 | 2,026,000 |
Table (3) |
Formula to calculate incremental percentage in net sales each year is,
Substitute $50,920,000 for increase in net sales and $233,715,000 for net sales.
Formula to calculate next 2 years’ net sales is,
Formula to calculate next 2 years’ SGA expenses is,
Year 2016
Substitute $233,715,000 for net sales.
Substitute 0.0345:1 for the ratio between selling, general and administrative expenses and net sales.
Year 2017
Substitute $284,618,127 for net sales.
Substitute 0.0345:1 for the ratio between selling, general and administrative expenses and net sales.
Hence, predictions for A companies’ total selling expenses and general and expenses for the next two years is $9,819,325 and $11,957,974.
G Company | ||||
Particulars | 2013 Amount ($) | 2014 Amount ($) | 2015 Amount ($) | Increase in Amount from 2014 to 2015 ($) |
Net sales | 55,519,000 | 66,001,000 | 74,989,000 | 8,988,000 |
Total Selling, general and administrative expenses | 10,986,000 | 13,982,000 | 15,183,000 | 1,201,000 |
Table (4) |
Formula to calculate incremental percentage in net sales each year is,
Substitute $8,988,000 for increase in net sales and $74,989,000 for net sales.
Formula to calculate next 2 years’ net sales is,
Formula to calculate next 2 years’ SGA expenses is,
Year 2016
Substitute $74,989,000 for net sales.
Substitute 0.1797:1 for the ratio between selling, general and administrative expenses and net sales.
Year 2017
Substitute $83,972,682 for net sales.
Substitute 0.1797:1 for the ratio between selling, general and administrative expenses and net sales.
Hence, predictions for G companies’ total selling expenses and general and expenses for the next two years is $15,089,891 and $16,897,660.
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