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:

Operating Profit for next year will be $432,500

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

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