Question

Pro forma income statement   The marketing department of Metroline Manufacturing estimates that its sales in 2020 will be $1.53 million. Interest expense is expected to remain unchanged at $34,000, and the firm plans to pay $74,000 in cash dividends during 2020. Metroline Manufacturing's income statement for the year ended December31, 2019i is given (See belong Graph) ,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, 2020 b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2020. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2020 income? Explain why.

Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2019

Cost of goods sold:

Fixed cost $202,000

Variable cost 700000

Total cost $902,000

Operating expenses Fixed expenses $39,000

Variable expenses 80000

Total expenses $119,000

Metroline Manufacturing Income Statement for the Year Ended December 31, 2019

Sales revenue $1,396,000

Less: Cost of goods sold 902000

Gross profits $494,000

Less: Operating expenses 119000

Operating profits $375,000

Less: Interest expense 34000

Net profits before taxes $341,000

Less: Taxes (rate = 40%) 136400

Net profits after taxes $204,600

Less: Cash dividends 63000

To retained earnings $141,600

Answer 1