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: Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income First Quarter $172,000 86,000 86,000 17,200 $ 68,800 Second Quarter $202,000 101.000 101,000 20,200 $ 80,800 Third Quarter $212,000 106,000 106,000 21,200 $ 84,800 Fourth Quarter $262,000 131,000 131,000 26,200 $104,800 Total $848,000 424,000 424,000 84,800 $339,200 Historically, cost of goods sold is about 50 percent of sales revenue. Seling 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 year's level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 10 percent. Required a. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada's estimate. b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks's estimate Complete this question by entering your answers in the tabs below. Required A Required B Prepare a pro forma income statement including quarterly budgets for the coming year using Mr.Arvadas estimate First Quarter Second Quarter Third Quarter Fourth Quarter Total

Answer 1

a.Arvada Estimate
	First	Second	Third	Fourth	Total
Sales Revenue	197,800	232,300	243,800	301,300	975,200
Cost of Goods Sold	98,900	116,150	121,900	150,650	487,600
Gross Profit	98,900	116,150	121,900	150,650	487,600
Selling and Admin Expenses	19,780	23,230	24,380	30,130	97,520
Net Income	79,120	92,920	97,520	120,520	390,080
Mr. Banks Estimate
	First	Second	Third	Fourth	Total
Sales Revenue	189,200	222,200	233,200	288,200	932,800
Cost of Goods Sold	94,600	111,100	116,600	144,100	466,400
Gross Profit	94,600	111,100	116,600	144,100	466,400
Selling and Admin Expenses	18,920	22,220	23,320	28,820	93,280
Net Income	75,680	88,880	93,280	115,280	373,120

2 B C D E F 1 a.Arvada Estimate First Second Third Fourth Total 3 Sales Revneue =172000*1.15 =202000*1.15 =212000*1.15 =262000*1.15 =SUM(B3:E3) 4. Cost of Goods Sold =B3*50% =C3*50% =D3*50% =E3*50% =F3*50% 5 Gross Profit =B3-B4 =C3-C4 =D3-D4 =E3-E4 =F3-F4 6 Selling and Admin Expenses =B3*10% =C3*10% =D3*10% =E3*10% =F3*10% 7 Net Income =B5-B6 =C5-C6 =D5-D6 =E5-E6 =F5-F6 4720*1.25 202000-2.25 21200-1.25 -262000-1.25 sume 3:23) 8 9 Mr. Banks Estimate 10 11 First 12 Sales Revneue =172000*1.1 13 Cost of Goods Sold =B12*50% 14 Gross Profit =B12-B13 15 Selling and Admin Expenses =B12*10% 16 Net Income =B14-B15 Second =202000*1.1 =C12*50% =C12-C13 =C12*10% =C14-C15 Third =212000*1.1 =D12*50% =D12-D13 =D12*10% =D14-D15 Fourth =262000*1.1 =E12*50% =E12-E13 =E12*10% =E14-E15 Total =SUM(B12:E12) =F12*50% =F12-F13 =F12*10% =F14-F15