(Solved by Humans)-Problem 14-18 Preparing pro forma income statements with different assumptions Top executive...

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Problem 14-18      Preparing pro forma income statements with different assumptions Top executive officers of Zottoli Company, a merchandising firm, are preparing the next year’s budget. The controller has provided everyone with the current year’s projected income  statement.     Sales revenue $2,000,000 Cost of goods sold   1,400,000 Gross profit 600,000 Selling & admin. expenses     260,000 Net income $ 340,000   Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative ex- penses are usually 10 percent of sales plus a fixed cost of $60,000. The president has announced that the company’s goal is to increase net income by 15 percent. Required The following items are independent of each other. a.     What percentage increase in sales would enable the company to reach its goal? Support your answer with a pro forma income statement. b.     The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production manager believes that an improved production procedure can cut cost of goods sold by 2 percent. What else can the company do to reach its goal? Prepare a pro forma income statement illustrating your proposal. c.     The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $340,000. With the increased ad- vertising, the company expects sales revenue to increase by 15 percent. Assume that cost of goods sold remains a constant proportion of sales. Can the company reach its goal?