You received the following financial statement from Bok Traders who manufacture replica rugby jerseys. The managing...
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You received the following financial statement from Bok Traders who manufacture replica rugby jerseys. The managing director, Mr Erasmus, has asked for your assistance to determine whether the marketing manager's proposal is a viable option in helping to boost the company's revenue. In the current financial year 40 000 jerseys were sold, which was 60 000 jerseys less than what was sold previously. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2021 DETAILS Sales R 8 800 000 Cost of Sales (4 500 000) Gross Profit Other operating income 4 300 000 1 200 000 5 500 000 (3 400 000) Gross operating income Operating expenses Operating profit 2 100 000 Interest income 195 000 2 295 000 (475 000) 1 820 000 Profit before interest expense Interest expense Profit before tax The marketing team, through their research, has indicated that if the selling price was reduced by 25%, then unit sales would increase by 60% for the next financial year. Together with the marketing department's research, the financial manager has provided you with the following forecasted information for the year ending 31 March 2022. Through negotiation with suppliers and the improved exchange rate, the costs to manufacture each jersey are expected to decrease by 10%. Other operating income is expected to increase by 5%. Operating expenses are expected to increase by 12%. Due to the decline in interest rates, interest income is expected to be three quarters of the amount earned for the year ending 31 March 2021 whilst the interest expense is expected to decline by R 50 000. Mr Erasmus has indicated that the proposal will only be implemented if the forecasted net profit before tax percentage exceeds the industry average of 15%. REQUIRED: Prepare a budgeted statement of comprehensive income using the information above to determine whether the marketing manager's proposal should be implemented. You received the following financial statement from Bok Traders who manufacture replica rugby jerseys. The managing director, Mr Erasmus, has asked for your assistance to determine whether the marketing manager's proposal is a viable option in helping to boost the company's revenue. In the current financial year 40 000 jerseys were sold, which was 60 000 jerseys less than what was sold previously. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2021 DETAILS Sales R 8 800 000 Cost of Sales (4 500 000) Gross Profit Other operating income 4 300 000 1 200 000 5 500 000 (3 400 000) Gross operating income Operating expenses Operating profit 2 100 000 Interest income 195 000 2 295 000 (475 000) 1 820 000 Profit before interest expense Interest expense Profit before tax The marketing team, through their research, has indicated that if the selling price was reduced by 25%, then unit sales would increase by 60% for the next financial year. Together with the marketing department's research, the financial manager has provided you with the following forecasted information for the year ending 31 March 2022. Through negotiation with suppliers and the improved exchange rate, the costs to manufacture each jersey are expected to decrease by 10%. Other operating income is expected to increase by 5%. Operating expenses are expected to increase by 12%. Due to the decline in interest rates, interest income is expected to be three quarters of the amount earned for the year ending 31 March 2021 whilst the interest expense is expected to decline by R 50 000. Mr Erasmus has indicated that the proposal will only be implemented if the forecasted net profit before tax percentage exceeds the industry average of 15%. REQUIRED: Prepare a budgeted statement of comprehensive income using the information above to determine whether the marketing manager's proposal should be implemented.
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Working note 1 Assumption sales unit is increased by 60 in next year from the current year sales uni... View the full answer
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