Question

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales $ 3,500,000 Cost of sales: Direct Material $ 500,000 Direct labor 250,000 Variable Overhead 275,000 Fixed Overhead 600,000 1,625,000 Gross Profit $ 1,875,000 Selling and General & Admin. Exp. Variable 750,000 Fixed 250,000 1,000,000 Operating Income $ 875,000 For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in all variable costs, and a $45,000 increase in fixed costs. The operating profit for next year would be:

Answer 1

Operating Profit for next year will be $432,500

Step-by-step explanation:

Particulars Current Year Next Year

Sales $3,500,000 $3,500,000 X 95%

= $3,325,000

Less: Costs

Material $500,000 $500,000 X 110%

= $550,000

Labor $250,000 $250,000 X 110%

= $275,000

Overhead $275,000 $275,000 X 110%

= $302,500

Fixed OH $600,000 $600,000 + $45,000

= $645,000

Gross Profit $1,875,000 $1,552,500

Less:

Selling & Administrative $750,000 $750,000 X 110%

= $825,000

Fixed Selling $250,000 $250,000 + $45,000

= $295,000

Operating Income $875,000 $432,500

Operating Profit for next year will be $432,500