Part 1

In the template document Download template document, you are provided with the FY2022 income statement for ABC Company and some additional assumptions. You are required to prepare the FY 2023 forecasted income statement for the company using only the provided information.

The FY2022 income statement for ABC Company is provided below. Use the following assumptions to forecast ABC's income statement for FY2023: Net sales will increase by 2.0% (200 basis points) in FY2023. Cost of sales: 75% of forecasted sales. SG&A expenses: 18% of forecasted sales. No announced divestitures for FY2023 Tax expenses as a percentage of pretax income: same as in 2022 Benefit plan nonservice income is assumed to be zero. The following line items remain unchanged in dollar terms: Interest, net Net earnings attributable to noncontrolling interests ABC Company Income Statement 2022 Actual Forecast Assumption 2023 Forecasted Net sales 18,870 Cost of sales 14,153 Selling, general, and administrative expenses 2,936 Divestitures (gain) 30 Operating profit 1,752 Interest, net 525 Earnings before taxes and after-tax earnings from JV 1,227 Income taxes 215 Net earnings, including earnings attributable to NCI 1,012 Net earnings attributable to NCI 35 Net earnings attributable to ABC Company 977

Part 2

create a memo to the management of ABC Company addressing the following:

1. Explain how the forecasted income statement was prepared, including the importance of using the assumptions. Do not explain how the numbers were calculated, this is what your formulas in Excel will show.
2. Discuss at least two other methods that could have been used to prepare the forecast. Include the pros and cons and any limitations or potential errors of using those methods.
3. Discuss at least one qualitative forecasting method that could also be incorporated to strengthen the reliability of the forecast in decision-making.