Question

Top executive officers of Zachary Company, a merchandising firm, are preparing the next years budget. The controller has proRequired A Required B Required C Prepare a pro forma income statement. What percentage increase in sales would enable the comRequired A Required B Required C The market may become stagnant next year, and the company does not expect an increase in salRequired A Required B Required C The company decides to escalate its advertising campaign to boost consumer recognition, whic

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Answer #1

A.

Sales Revenue $           2,698,666.67
Less: Cost of Goods Sold 75% $           2,024,000.00
$             674,666.67
Less: Selling Variable cost 10% $             269,866.67
$             404,800.00
Less: Fixed Cost $               77,000.00
Net income = $             327,800.00

Percentage increase = (2,698,666.67-2,500,000)/ 2500,000 = 7.95%

Working:

Projected Net Income = 298000
Required increase =298000*10% 29800
So Required Profit = =298000+29800 327800
Let required sales be x
Cost of goods sold = 0.75x
Selling expenses = 0.10x
Fixed Cost = 77,000
Total Cost = 77,000+0.75x+0.10x
Sales =   x
Profit =   x-(77,000+0.75x+0.10x) = 327,800
x-0.85x = 404,800
0.15x = 404,800
x = 404,800/0.15 = $     2,698,666.67

B.

Sales Revenue $                   2,500,000.00
Less: Cost of Goods Sold 73% $                   1,825,000.00
Gross Profit $                      675,000.00
Less: Selling and administrative expense $                      327,000.00
Net income = $                      348,000.00
Reduction in selling and administrative expense $                                   -  
Net income = $                      348,000.00

Company should not decrease it's fixed cost or selling expenses as by decrease in Cost of goods sold net income increased

by 16% which is more than required 10%

C.

Sales = 2,500,000*110% = $           2,750,000.00
Less: Cost of goods sold = 75 % $           2,062,500.00
Gross Profit $             687,500.00
Less: Selling & Admn exp $             345,000.00
Net Income $             342,500.00
Will company reach its goal Yea
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