Question

Examine Nike’s 2011 10-K presented in Appendix C. Find the section of the 10-K titled “Results of Operations” showing a condensed income statement for fiscal years 2009, 2010, and 2011. Use the condensed income statement to calculate budgeted net income for fiscal 2012 under the following alternative sets of assumptions. Round amounts to the nearest million dollars.
1. Note that Nike’s revenues increased by about 10% last year. Assume cost of sales is 55% of revenue, selling and administrative expense is 32% of revenue, and income tax expense is 25% of income before income taxes. Assume that all costs are variable.
a. Calculate budgeted net income if revenue increases by 10%.
b. Calculate budgeted net income if revenue decreases by 10%.
2. Now assume that selling and administrative expense is fixed at the dollar amount shown in the
2011 10-K, but continue to assume cost of sales is 55% of revenue and income tax expense is 25% of income before income taxes.
a. Calculate budgeted net income if revenue increases by 10%.
b. Calculate budgeted net income if revenue decreases by 10%.
3. Note that Nike’s gross margin was about 45% in fiscal 2011 but was about 1% higher in 2010 and about 1% lower in 2009. Assume revenue for 2012 will be the same as in 2011, selling and administrative expense is a fixed cost equal to the dollar amount shown in the 2011 10-K, and income tax expense is 25% of income before income taxes.
a. Calculate budgeted net income if the gross margin increases to 46%.
b. Calculate budgeted net income if the gross margin decreases to 44%.



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  • CreatedNovember 19, 2014
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