The company would require $2,996,000 to guarantee that it meets its growth projections.
A consolidated income statement is a document that shows the total earnings, expenses, and other revenues of an organization over a specific period. A construction company's income statement for the previous year is shown below:
Sales$6,000,000
Cost of Goods Sold$3,600,000
Gross Profit$2,400,000O
perating Expenses:$1,500,000
Wages and Salaries$ 400,000
Rent and Utilities$ 300,000
Equipment and Vehicle Maintenance$ 200,000
Depreciation$ 100,000
Insurance$ 100,000
Taxes$ 200,000O
perating Profit$ 900,000
Interest$ 50,000
Net Income$ 850,000
For the upcoming year, the company wants to raise its revenues by 5%. Additionally, the overhead expenses must rise by 7%. To guarantee that the growth projections are met, the company must allocate enough money for overhead costs.To determine the budget for overhead costs, you must first compute the current overhead expense. Here is the list of current overhead expenses:
Operating Expenses:$1,500,000
Wages and Salaries$ 400,000
Rent and Utilities$ 300,000
Equipment and Vehicle Maintenance$ 200,000
Depreciation$ 100,000
Insurance$ 100,000
Taxes$ 200,000
The total overhead cost for the year is $1,500,000 + $400,000 + $300,000 + $200,000 + $100,000 + $100,000 + $200,000 = $2,800,000
To determine how much you should budget for overhead costs for the upcoming year, follow the formula: Budgeted overhead costs = previous year's overhead costs x percentage increase.
Therefore, budgeted overhead costs = $2,800,000 x 7% = $196,000.
This implies that the company should budget $2,800,000 + $196,000 = $2,996,000 for overhead expenses in the next year. The company would require $2,996,000 to guarantee that it meets its growth projections.
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