nike 10 k problem 7 46 budgeting assumptions at nike examine nike s 2008 10 385229

Nike 10 K Problem 7 46 Budgeting Assumptions at Nike Examine Nikes 2008 10 K presented in Appendix C. find the section of the 10 K titled “Results of Operations” showing a condensed income statement for fiscal years 2006, 2007, and 2008. Appendix C: “Results Of Operations:” FY08 vs. FY07 FY07 vs. FY06 Fiscal 2008 Fiscal 2007 % Change Fiscal 2006 % Change Revenues $18,627.0 $16,325.9 14% $14,954.9 9% Cost of sales 10,239.6 9,165.4 12% 8,367.9 10% Gross margin 8,387.4 7,160.5 17% 6,587.0 9% Gross margin % 45.0% 45.9% 44.0% Selling and administrative expense 5,953.7 5028.7 18% 4,477.8 12% % revenues 32.0% 30.8% 9.9% Income before income taxes 2,502.9 2,199.9 14% 2,141.6 3% Net income 1,883.4 1,491.5 26% 1,392.0 7% Diluted earnings per share 3.74 2.93 28% 2.64 11% Use the condensed income statement to calculate budgeted net income for fiscal 2009 under the following alternative sets of assumption. 1. Note that Nikes revenues have increased by about 10% per year for each of the last 2 years. Assume cost of sales is 55% revenue, selling and administrative expense is 32% of revenue and income tax expense is 25% of income before income taxes. Assume that all costs are variable. a. Calculate budgeted net income if revenue increases by 10% b. Calculate budgeted net income if revenue decreases by 10% 2. Assume cost of sales is a variable cost and is 55% of revenue, selling and administrative expense is fixed, and income tax expense is a variable and is 25% of income before income taxes. a. Calculate budgeted net income if revenue increases by 10% b. Calculate budgeted net income if revenue decreases by 10% 3. Note that Nikes gross margin was 45% in fiscal 2008 but was slightly lower in 2006 and 2007, at 44% and 43.9%, respectively. Assume revenue for 2009 will be the same as in 2008, selling and administrative expense is a fixed cost of $5,954 million, and income tax expense is 25% of income before income taxes. a. Calculate budgeted net income if the gross margin increases to 46% b. Calculate budgeted net income if the gross margin decreases to 44%