Real-Life Math
Auditors are responsible for analyzing a company's financial
statements to ensure budgets are being met and profits are being made.
Your
head office has just sent you to its newest retail outlet in a mid-sized shopping
mall. They've asked you to review the store's budget for common
area expenses -- a monthly amount that is charged to the store by mall management.
This amount is determined by charging 2 percent of each store's gross
sales.
Budgets have been put in place by senior management for the
store you're visiting. However, mall management has recently implemented
a new budget to offset the rising costs of maintaining the mall's common
area. Mall management has proposed a common area maintenance increase of 2
percent for the current year, 3 percent for the second year and
4 percent for the third year.
The store's gross sales for the
first year have been budgeted at $275,000. Estimated sales for the second
year are $325,000, and for the third year they are $390,000.
Based
on your company's other locations, senior management has budgeted a total
of $21,000 for your store's common area expenses for the first 3 years.
With the projected increase each year, will the store's common area expenses
fall within the company's budget?