Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales next year will be $1.68 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $74,000 in cash dividends. Metroline Manufacturing's income statement for the previous year is given along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components. a. Use the percent-of-sales method to prepare a pro forma income statement for next year. b. Use fixed and variable cost data to develop a pro forma income statement for next year. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of income? Explain why.
Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales next year will be $1.68 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $74,000 in cash dividends. Metroline Manufacturing's income statement for the previous year is given along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components. a. Use the percent-of-sales method to prepare a pro forma income statement for next year. b. Use fixed and variable cost data to develop a pro forma income statement for next year. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of income? Explain why.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales next year will be $1.68 million. Interest expense is expected to remain unchanged at $35,000,
and the firm plans to pay $74,000 in cash dividends. Metroline Manufacturing's income statement for the previous year is given along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components.
and the firm plans to pay $74,000 in cash dividends. Metroline Manufacturing's income statement for the previous year is given along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components.
a. Use the percent-of-sales method to prepare a pro forma income statement for next year.
b. Use fixed and variable cost data to develop a pro forma income statement for next year.
c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of income? Explain why.
Transcribed Image Text:Metroline Manufacturing
Income Statement
for the Year Just Ended
Sales revenue
Less: Cost of goods sold
Gross profits
Less: Operating expenses
Operating profits
Less: Interest expense
Net profits before taxes
Less: Taxes (rate = 40%)
Net profits after taxes
Less: Cash dividends
To retained earnings
$1,398,000
902,000
$496,000
114,000
$382,000
35,000
$347,000
138,800
$208,200
65,000
$143,200
Metroline Manufacturing
Breakdown of Costs and Expenses
into Fixed and Variable Components
for the Year Just Ended
Cost of goods sold
Fixed cost
Variable cost
Total cost
Operating expenses
Fixed expenses
Variable expenses
Total expenses
$202,000
700,000
$902,000
$40,000
74,000
$114,000
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Step 1: Proforma Income Statement
VIEWStep 2: Use the percent-of-sales method to prepare a pro forma income statement for next year.
VIEWStep 3: Use fixed and variable cost data to develop a pro forma income statement for next year.
VIEWStep 4: Compare and contrast the statements developed in parts a. and b.
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