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	$	174,000			$	204,000			$	214,000			$	264,000			$	856,000
Cost of goods sold		121,800				142,800				149,800				184,800				599,200
Gross profit		52,200				61,200				64,200				79,200				256,800
Selling & administrative expenses		17,400				20,400				21,400				26,400				85,600
Net income	$	34,800			$	40,800			$	42,800			$	52,800			$	171,200

Historically, cost of goods sold is about 70 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 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  

1. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate.

2. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’ estimate.

Answer 1