Financial Accounting: An Integrated Statements Approach - Essay Example

I think that the company hit its target of +10% because, in the last financial year, it got 35.7% which could be spread in the last three previous financial years. I think that factors such as fixed and variable costs also attributed to the decline in revenue.

1. Use the Percentage Sales Method and a 25% increase in sales to forecast Micro Chip's Consolidated Statement of Operations from September 26, 2008, through September 25, 2009. Assume a 15% tax rate and restructuring costs of 5% of the new sales figure.

Sales method percentage will be given by the formula 125/100 * amount for every particular in the Consolidated Statements of Operations (Duchac, et, al 2007). For instance in sales 125/100 * 8,334= $10,417.5.

                                          Micro Chip Computer Corporation

                Consolidated Statements of Operations for the period September 26, 2008, through

                                                               September 25, 2009

2008 (Amount in $)

2009 (Amount in $)

Sales

     8334.00

        10,417.5

Cost of sales

     5458.00

          6,822.5

Gross margin

     2876.00

          3,595.0

                Operating expenses

R &D

     525.00

             656.25

Selling, general and administrative

     691.00

             863.75

In–process R&D

   --------

              --------

Restructuring cost

   ---------

            520.875

Total operating expenses

    1,216.00

2,040.9

Operating income

    1,660.00

             1,554.1

Total interest and another interest net

       194.00

              242.5

Income before the provision of other income taxes

    1854.00

              2,317.5

Provision for income taxes (15%)

      278.10

                 347.6

Net income

    1570.90

               1,969.9

Discuss your results from question number #1. What assumptions have you made? Do any of your assumptions seem unreasonable?

Net income for the year 2008 was given to be $1,570.9 and when this figure is compared to the financial year 2009 which is 1,969.9, it shows a 25% increase in sales to forecast, and yet we had a 5% restructuring cost on the new sales.

Assumptions made here include all costs remaining as a fixed percentage of sales. This assumption is unreasonable since in the normal running of a business, the organization can incur more or less cost than the stipulated cost as a fixed percentage of sales (Duchac et al, 2007).