PI2 Example

PI2 Example PI2 – Essay Example PART A Question 2005 = 11,933 – 11,062 * 100 = 7.874% increase 11,062 2006 = 9,181 – 11,933 * 100 = 2.306% decrease 11,933 2007 = 6,141 – 9,181 * 100 = 3.311% decrease 9,181 2008 = 8,334 – 6,141 * 100 = 3.571% increase 6,141 Question 2 Using the current trend for Micro Chip Computer Corporation as a basis, I do not think that the company achieved its sales target of 10% growth in 2009. This is because in 2008, the company only had a 3.571% increase and the previous years prior to that had recorded a decrease in sales. Therefore, there is no indication of a constant growth in sales over the years and so it would be difficult for the company to make a 10% increase in sales in 2009. The actual sales figure for 2009had the company made a 10% increase would be: 110% * 8,334 = $ 9,167 It would be quite difficult for the company to hit this target in 2009 since there is no indication of such a significant growth in sales over the prior years. Therefore, my view is that, at the very best the company can only improve on 2008’s sales growth from a 3.571% increase to probably 5% or 6%. This would be the best case scenario given the information on previous years. PART B Question 1 Percentage of sales (%) Sales increase by 20% Sales $8,334.00 100 10,000 Cost of Sales $5,458.00 65.5 6,549 Gross Margin $2,876.00 34.5 3,451 Operating expenses: R & D $525.00 6.3 630 Selling, General, and Administrative $691.00 8.3 829 In†process R & D †Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬  Restructuring costs †Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬ Ã¢â‚¬  2 200 Total Operating Expenses $1,216.00 1,659 Operating income $1,660.00 1,792 Total interest and other Income net $194.00 2.3 233 Income before provision for Income taxes $1,854.00 2,025 Provision for income Taxes (15%) $278.10 303.75 Net income $1,575.90 1,721.25 Question 2 The results in question 1 show that a 20% increase in sales consequently leads to an increase in net income. This is true since increase in sales revenue produces more income for a company and therefore the net income would also increase. The assumption for question 1 is that the 20% increase in sales leaves all other factors constant, therefore resulting in a proportionate change in all other items in the Statement of Operations with respect to sales. This assumption is however not reasonable since if the sales revenue for a company increases by 20%, it mean that there are other costs that were incurred in order to increase this sales revenue. For example advertising, sales and marketing costs should probably have been incurred so as to improve the sales figure over the next year. References Drur.y C, (1998). Costing an Introduction 4th Edition, Thomson Learning. Drury C, (2008). Management and Cost Accounting, Chapman and Hall 7th Edition. Horngren, CT, Foster, G and Datar S.M (2001). Cost Accounting:A Managerial Emphasis 10th Edition Prentice Hall of India; New Delhi, Robert Kaplan & A A Atkinson (2004). Advanced Management Accounting, 2nd Edition Prentice-Hall