Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming
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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:
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |
---|---|---|---|---|---|
Sales revenue | $ 170,000 | $ 200,000 | $ 210,000 | $ 260,000 | $ 840,000 |
Cost of goods sold | 102,000 | 120,000 | 126,000 | 156,000 | 504,000 |
Gross profit | 68,000 | 80,000 | 84,000 | 104,000 | 336,000 |
Selling & administrative expenses | 17,000 | 20,000 | 21,000 | 26,000 | 84,000 |
Net income | $ 51,000 | $ 60,000 | $ 63,000 | $ 78,000 | $ 252,000 |
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 15 percent for each respective quarter above last years level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 10 percent.
Required
- Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvadas estimate.
- Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks estimate.
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