The marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.68 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $66,000 in cash dividends during 2016. Metroline Manufacturing's income statement for the year ended December 31, 2015, 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 the year ended December 31, 2016.b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016.c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2016 income? Explain why. (Click on the icon located on the top-right corner of the data tables below in order to copy its contents into a spreadsheet.)Metroline ManufacturingBreakdown of Costs and Expensesinto Fixed and Variable Componentsfor the Year Ended December 31, 2015Metroline ManufacturingIncome Statementfor the Year Ended December 31, 2015Sales revenue$1,400,000Cost of goods soldLess: Cost of goods soldGross profitsLess: Operating expensesOperating profitsLess: Interest expense915,000Fixed cost$214,000$485,000119,000Variable cost701,000$366,000Total cost$915,00035,000Operating expensesFixed expensesVariable expensesTotal expensesNet profits before taxesLess: Taxes (rate = 40%)$331,000$35,000132,400$198,60066,00084,000Net profits after taxes$119,000Less: Cash dividendsTo retained earnings$132,600PrintDone

Percent to sales method: Under this method every expenses or costs are taken as a percentage of…

Answered: The marketing department of Metroline…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.68 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $66,000 in cash dividends during 2016. Metroline Manufacturing's income statement for the year ended December 31, 2015, 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 the year ended December 31, 2016.

b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016.

c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2016 income? Explain why.

(Click on the icon located on the top-right corner of the data tables below in order to copy its contents into a spreadsheet.)
Metroline Manufacturing
Breakdown of Costs and Expenses
into Fixed and Variable Components
for the Year Ended December 31, 2015
Metroline Manufacturing
Income Statement
for the Year Ended December 31, 2015
Sales revenue
$1,400,000
Cost of goods sold
Less: Cost of goods sold
Gross profits
Less: Operating expenses
Operating profits
Less: Interest expense
915,000
Fixed cost
$214,000
$485,000
119,000
Variable cost
701,000
$366,000
Total cost
$915,000
35,000
Operating expenses
Fixed expenses
Variable expenses
Total expenses
Net profits before taxes
Less: Taxes (rate = 40%)
$331,000
$35,000
132,400
$198,600
66,000
84,000
Net profits after taxes
$119,000
Less: Cash dividends
To retained earnings
$132,600
Print
Done

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