Question

Proforma income statement The marketing department of Metroline Mancuring emates that are in 2016 will be 164 m or t plans to pay $67.000 in cash dividends during 2016. Metroline Manufacturing's income statement for the year ended December 31, 2015, is given operating expenses into their fixed and variable components expensis expected to remain charged 7000, and the fem wong with a breakdown of the firm's cost of goods sold and a. Use the percent of method to prepare a promine n t 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 and b. Which statement probably provides the be s t of 2018 come? Explain why for the Year Ended December 31, 2016 (percent of sales method) Sales Less: Cost of goods sold Gross profits Less: Operating expenses Operating profits Los interest expense Net profits before Less: Taxes Net profiteres Less Cash dividends Enter any number in the edit fields and then click Check Answer Check Awwer Clear All 2 maining

Answer 1

Solution

Metroline Manufacturing Inc

Proforma income statement (percent of sales method)

Metroline Manufacturing Inc
Proforma Income Statement
For the year ended December 31, 2016
Sales		$1,640,000
Less: cost of goods sold (64.95%)		$1,065,239
Gross profits		$574,761
Less: operating expenses (7.85%)		$128,765
operating profits		$445,996
Less: interest expense		$37,000
Net profit before taxes		$408,996
less: tax @40%		$163,598
After tax profits		$245,398
Less: cash dividends		$67,000
To retained earnings		$178,398

Proforma income statement based on fixed and variable cost data

Metroline Manufacturing Inc
Proforma income statement based on fixed and variable cost data
For the year ended December 31, 2016
Sales		$1,640,000
Less: Cost of goods sold
Fixed	$215,000
Variable	$813,562	$1,028,562
Gross profit		$611,438
Operating expense
Fixed	$39,000
Variable	$83,112	$122,112
operating profits		$489,326
Less: interest expense		$37,000
profit before tax		$452,326
Less: tax at 40%		$180,930
profit after tax		$271,396
Less: cash dividends		$67,000
To retained earnings		$204,396

Part 3:

The proforma income statement based on fixed and variable cost data shows higher net profit after tax as compared to the proforma income statement created using percent sales method. This is in view of        lower cost of goods sold and operating expenses compared to percent of sales method.

Comparatively, the proforma income statement based on fixed and variable cost data is more appropriate as it provides cost classification.