- Sales (S) : $46,000,000
- Cost of Goods Sold (COGS): $20,700,000, which is also a type of variable costs, and changes in a direct proportion of 45% (COGS/Sales = 20,700,000/46000000) to the sales figure.
- Selling and Administrative Costs (S&AC): $19,800,000
- Operating Income (OC): $5,500,000
- Budgeted Return on Sales (ROC): 15% of Sales
- Other Variable costs (VC): Sales Commission (SC=5% of sales)
- Fixed Costs (FC)= $19,800,000 - 5% x $46,000,000 =$17,500,000
The relationship of new Cost-Volume-Profit can be re-established as follows:
Sales - Variable Costs -Fixed Costs = Budgeted Return on Sales
Sales -
Cost of Goods Sold -
Sales Commission - Fixed Costs = Budgeted Return on Sales
S - COGS - SC - FC = ROC
S - 45%S - 5%S - FC = 15%S
S - 0.45S - 0.05S - 0.15S = $17,500,000
0.35S = $17,500,000
S = $50,000,000
Thus, an increase in sales is required: $50,000,000- $46,000,000 = $4,000,000
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Kam Sing LEUNG CFP, CPA, FCCA
Controller
Total Solution Consultancy (Hangzhou) Limited
Hangzhou
China
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Original Message:
Sent: 06-09-2013 05:51 PM
From: Ahmed Abd El Aziz
Subject: sales to achieve goales
22. Shoo Inc. owns several retail stores. After all initial budget requests were received for the upcoming year, Shoo's abbreviated pro forma income statement is as follows.
Sales $46,000,000
Cost of goods sold 20,700,000
Selling and administrative costs 19,800,000
Operating income $ 5,500,000
The cost of goods sold and a 5% sales commission are the only variable costs. Shoo's upper management believes that the sales manager underestimated projected sales units and wants the sales budget increased such that the company can achieve its goal of a 15% return on sales. The amount by which sales must increase to achieve this goal is
answer $4,000,000 ???
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Ahmed Abd El Aziz
Director/Manager
Ishraqaat Al-Taqwwa Group
Kuwait
Kuwait
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