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Members of XYZ are preparing the next years budget. The current years projected income statement: sales revenue $2,300,000 cost of goods sold $1,725,000 gross profit $575,000 selling & admin cost $304,000 net income $271,000 Cost of goods sold is 75% of sales revenue, and selling & admin costs are 10% of sales plus a fixed cost of $74,000. The goal is to increase net income by 15%. 1. Prepare a pro forma income statement. What % increase in sales would enable the company to reach its goal? 2. The company does not expect an increase in sales revenue. Management thinks that an improved production can cut cost of goods sold by 2 %. Prepare a pro forma income statement still assuming the goal is to increase net income by 15%. Calculate the required reduction in selling & admin to achieve the budgeted net income.
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