Profit Planning via Income Statement. The controller of the Alcatel Mobile Phone Corporation presented the following income statement for the year ending June 30, 19A to the board of directors:
Sales $12,000,000
Cost of goods sold:
Direct materials $3,800,000
Direct labor 2,900,000
Factory overhead 2,450,000 9,150,000
Gross profit $ 2,850,000
Commercial expenses :
Marketing expenses $1,350,000
Administrative expenses 1,000,000 2,350,000
Net income $ 500,000
Cost of goods sold:
Direct materials $3,800,000
Direct labor 2,900,000
Factory overhead 2,450,000 9,150,000
Gross profit $ 2,850,000
Commercial expenses :
Marketing expenses $1,350,000
Administrative expenses 1,000,000 2,350,000
Net income $ 500,000
The board discussed the ratio of net income to sales and decided that for the year 19B an increase of at least 25% of the present profit was desirable. While the sales volume is expected to increase about 20%, all costs and expenses point to considerable advances in costs; e.g., direct materials up 8%; direct labor up 10%; factory overhead up 3%; marketing expenses up 4%; and administrative expenses up 2%. The 3% increase of factory overhead applies to the variable overhead only. Fixed factory overhead is considered to remain at the present level of $1,250,000. Volume will not cause an increase in marketing and administrative expenses. Ignore income tax.
Required: (1) A forecast income statement for the year 19B incorporating all cost increases as well as management's goal for a higher net income.
(2) How much will the percentage of net income to sales change from the previous year?