Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales b
ID: 2582707 • Letter: J
Question
Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:
Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue. Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 8 percent for each respective quarter above last year’s level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 5 percent.
Required:
1) Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate.
2) Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’ estimate.
First Quarter Second Quarter Third Quarter FourthQuarter Total Sales Revenue $ 90,000 $ 100,000 $ 105,000 $ 130,000 $425,000 Cost of goods sold (54,000) (60,000) (63,000) (78,000) (255,000) Gross profit 36,000 40,000 42,000 52,000 170,000 Selling & Administrating Expenses (8,500) 10,000 (10,500) (13,000) (42,000) Net income $ 27,500 $ 30,000 $ 31,500 $ 39,000 $128,000Explanation / Answer
1) Proforma Income Statement using Mr. Arvarda's estimate (Amount in $)
ThirdQuarter
97,200
(90,000*1.08)
108,000
(100,000*1.08)
113,400
(105,000*1.08)
140,400
(130,000*1.08)
2) Proforma Income Statement using Ms. Banks' estimate (Amount in $)
ThirdQuarter
94,500
(90,000*1.05)
105,000
(100,000*1.05)
110,250
(105,000*1.05)
136,500
(130,000*1.05)
Particulars First Quarter Second QuarterThirdQuarter
Fourth Quarter Total Sales Revenue (increase of 8% in sales from last year)97,200
(90,000*1.08)
108,000
(100,000*1.08)
113,400
(105,000*1.08)
140,400
(130,000*1.08)
459,000 Cost of goods sold (60% of sales) (58,320) (64,800) (68,040) (84,240) (275,400) Gross profit 38,880 43,200 45,360 56,160 183,600 Selling & Administrating Expenses (10% of sales revenue) (9,720) (10,800) (11,340) (14,040) (45,900) Net income 29,160 32,400 34,020 42,120 137,700Related Questions
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