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  • 1.  sales to achieve goales

    Posted 06-09-2013 05:51 PM

     

    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  ???


    -------------------------------------------
    Ahmed Abd El Aziz
    Director/Manager
    Ishraqaat Al-Taqwwa Group
    Kuwait
    Kuwait
    -------------------------------------------


  • 2.  RE:sales to achieve goales

    Posted 06-09-2013 10:06 PM
    1. Sales (S) : $46,000,000
    2. 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.
    3. Selling and Administrative Costs (S&AC): $19,800,000
    4. Operating Income (OC): $5,500,000
    5. Budgeted Return on Sales (ROC): 15% of Sales
    6. Other Variable costs (VC): Sales Commission (SC=5% of sales)
    7. 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

    -------------------------------------------
    Kam Sing LEUNG CFP, CPA, FCCA
    Controller
    Total Solution Consultancy (Hangzhou) Limited
    Hangzhou
    China
    -------------------------------------------








  • 3.  RE: sales to achieve goales

    Posted 10-11-2019 08:22 AM
    Another solution,  by algebra:-

    Whereas X= increased amount .

    46000+x- (0.45×46000)-0.5×-19800 = 0.15(46000+×)

    ------------------------------
    Hesham Khalaf Mahmoud Hassan CMA
    Accountant
    Salwa
    Kuwait
    ------------------------------



  • 4.  RE:sales to achieve goales

    Posted 06-09-2013 11:35 PM
    Hello Ahmed,

    Basic formula of target sales:  (Fixed Cost + Desired Profits)/Contribution Margin Ratio

    Fixed Cost

    • Selling and Admin Cost minus 5% of Sales

    = $19.8M - (5% X $46M)
    = $17.5M


    Contribution Margin Ratio

    • Sales is $46M
    • Variable Cost = Cost of Goods Sold + 5% of Sales

    = $20.7M + $2.3M
    = $23M

    Ratio = 23M / 46M
    CMR = 50%

    Solution:

    Target Sales = ($17,500,000 + 15% of target sales) / 50%
    0.5 TS = 17,500,000 + .15 TS
    0.35 TS = 17,500,000
    TS = $50,000,000

    Required increase from current est. sales to achieve 15% return on sales
    = $50M - $46M
    = $4M


    -------------------------------------------
    Angel Secerio CMA, CPA
    Director/Manager
    Insights Financial Review Services Inc
    Makati City
    Philippines
    -------------------------------------------