Avatar Corp. has been the wholesale distributor of auto parts for domestic cars for 20 years. The company has suffered through the recent slump in the domestic auto industry, and its performance has not rebounded to the levels of the industry as a whole. The income statement for the year ended November 30, 2019 is also as follows (in thousands):
Avatar Corp.
Income Statement
For the year ended, November 30, 2019
Net Sales 8,400
Cost and Expenses
Cost of good sold 6,300
Marketing expenses 780
Administrative expense 900
Interest Expense
140
Total Expenses
8,120
Income before tax 280
Provision for income tax
112
Net income168
The management team is considering the following actions for fiscal year 2020, which they expect, will improve profitability and result in a 5% increase in unit sales.
a. Increase sales price 10%
b. Increase advertising by P420,000 and hold all other marketing and administrative expenses at fiscal 2019 levels
c. Improve customer service by increasing average current assets (inventory and accounts receivable) by a total of P300,000 and hold all other assets at fiscal 2019 levels
d. Finance the additional asset and an annual interest rate of 10% and hold all other interest expense at fiscal year 2019 levels
e. Improve the quality of products carried; this will increase the unit cost of goods sold by 4%
f. Income tax rate is expected to be 40%, the same as in 2019
INSTRUCTIONS: Prepare budgeted income statement for 2020, assuming the plans would be carried out and 5% inrease in unit sales would be realized.