Question

Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:

	First Quarter	Second Quarter	Third Quarter	FourthQuarter	Total
Sales Revenue	$ 90,000	$ 100,000	$ 105,000	$ 130,000	$425,000
Cost of goods sold	(54,000)	(60,000)	(63,000)	(78,000)	(255,000)
Gross profit	36,000	40,000	42,000	52,000	170,000
Selling & Administrating Expenses	(8,500)	10,000	(10,500)	(13,000)	(42,000)
Net income	$ 27,500	$ 30,000	$ 31,500	$ 39,000	$128,000

Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue. Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 8 percent for each respective quarter above last year’s level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 5 percent.

Required:

1) Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate.

2) Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’ estimate.