Stuart Corporation has three divisions, each operating as a responslbility cente

Question

Stuart Corporation has three divisions, each operating as a responslbility center. To provide an incentive for divisional executive officers, the company gives divisional management a bonus equal to 15 percent of the excess of actual net income over budgeted net income. The following is Atlantic Division's current year's performance: Sales revenue Cost of goods sold Gross profit Selling&administrative; expenses Net income current Year $4,090,000 2,320,000 1,770,000 710,000 $1,060,000 The president has just received next year's budget proposal from the vice president in charge of Atlantic Division. The proposal budgets a 4 percent Increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled. Atlantic has enjoyed revenue growth of around 9 percent for each of the past five years. The president had consistently approved the dlvision's budget proposals based on 4 percent growth in the past. This time, the president wants to show that he is not a fool. "I will impose a 14 percent revenue increase to teach them a lesson!" the president says to himself smugly. Assume that cost of goods sold and selling and administrative expenses remain stable in proportion to sales. Required a. Prepare the budgeted income statement based on Atlantic Division's proposal of a 4 percent increase. b-1. Prepare income statement with 9% growth. b-2. If growth is actually 9 percent as usual, how much bonus would Atlantic Division's executive officers recelve if the president had approved the dlvision's proposal? c. Prepare the budgeted income statement based on the 14 percent increase the president imposed. d. If the actual results turn out to be a 9 percent Increase as usual, how much bonus would Atlantic Division's executve officers recelve since the president imposed a 14 percent increase? Complete this question by entering your answers in the tabs below Req A Req B1 Req B2 Reqs C and D Prepare the budgeted income statement based on Atlantic Division's proposal of a 4 percent increase STUART CORPORATION Budgeted Income Statement Sales revenue Cost of goods sold Gross profit Selling & administrative expenses Net income

Explanation / Answer

a.

b.

b-2. Bonus = (1155094-1102108)*15% = $7948

c.

Sales Revenue (A) 4253600 Cost of Goods Sold (B) 2413067 Gross Profit (A-B) 1840533 Selling & Administration Expenses 738425 Net Income 1102108

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---