Free Essay On Micro Chip Computer Corporation

Question 1

Sales increased only in years 2005 and 2008.
Percentage annual growth for 2008 = 8,334-6,1416,141 × 100% = 35.71%
Percentage annual growth for 2007 = 6,141-9,1819,181 × 100% = -33.11%
Percentage annual growth for 2006 = 9,181-11,93311,933 × 100% = -23.06%
Percentage annual growth for 2005 = 11,933-11,06211,062 × 100% = 7.87%

Question 2

Target for 2009 = 110% × Net sales for 2008
= 1.1 × 8,334
= $9,167
I think the company hit its target in 2009. The company had a poor run of performance from 2005 to 2007. The 35.71% growth in sales in 2008 could be an indication of the end of the company’s poor run of performance (Mentzer & Moon, 2005). Assuming the company’s fortunes have turned around, a 10% increase in sales in 2009 is a most likely occurrence.

Question 2

Statement of operations
Workings
The first step is to express each item that is related to sales as a percentage of sales (Stickney & Stickney, 2010).
Cost of sales = 5,4588,334 × 100% = 65.491%
Gross margin = 2,8768,334 × 100% = 35%
Selling, General and Administrative expenses = 6918,334 × 100% = 8.291%
Sales forecast for 2009 = 125% × 8,334 = 10,417.50

The second step involves calculating the forecast for the items related to sales using the percentages determined above (Stickney & Stickney, 2010).

Cost of sales = 65.491% × 10,417.50 = 6,822.50
Selling, general and administrative expenses = 8.291% × 10,417.50 = 863.75
Restructuring costs = 5% × 10,417.50 = 520.88
Provision for income taxes = 15% of net income = 15% × 1,491.42 = 223.71
Figures such as gross margin, total operating expenses, operating income and net income do not need to be expressed in terms of sales (Mowen, Hansen & Heitger, 2014). They are obtained by getting the sum or difference of the values related to sales above.

Results and assumptions

At a 25% increase in sales for the year ended September 25, 2009, the company will achieve its target of 10% sales growth in 2009. The sales for 2009 will be $10,417.50 that is higher that the target of $9,167 as determined in question one.
The forecast assumes that only cost of sales and Selling, General and Administrative expenses are related to sales. Research and developing costs have no relation to the amount of sales since the expenditure is incurred based on the company’s plans and strategies. In addition, interest and other income do not relate to sales volume. These are assumed as interest and income earned on the company’s investments such as bonds, stocks, and other securities. In most cases, such investments pay, especially those in bonds, have fixed incomes. Therefore, they depend on the total investments of the company and not sales volume.
The assumptions made are reasonable. Provision for income tax remains at 25% since no changes in taxation policies and rates by the government are expected. In addition, a sales increase of 25% is reasonable considering that the company’s sales increased by 35.71% in 2008 (Mentzer & Moon, 2005).

References

Mentzer, J., & Moon, M. (2005). Sales forecasting management. Thousand Oaks, Calif.: Sage Publications.
Mowen, M., Hansen, D., & Heitger, D. (2014). Cornerstones of managerial accounting. Mason, OH: South-Western Cengage Learning.
Stickney, C., & Stickney, C. (2010). Financial accounting. Mason, OH, USA: South-Western Cengage Learning.