Question

Prepare a pro forma income statement for 2015 using the percent-of-sales method. What is the expected net income?

Intro Income statement for 2014 Line item Sales - COGS = Gross profit - SG&A - Depreciation = Operating profit - Interest = Taxable income - Taxes (28%) = Net income Amount ($) 500,000 200,000 300,000 100,000 50,000 150,000 25,000 125,000 35,000 90,000 Sales are expected to increase to $600,000 in 2015, while interest expenses and the average tax rate are expected to stay constant.

We also know the break-down into fixed and variable costs for 2014:

Prepare a pro forma income statement for 2015 using the percent-of-sales method and distinguish between fixed and variable costs. What is the expected net income?

Answer 1

Income Statement
For the Year Ended December 31, 2015			Percentage
Sales		$600,000	100%
Less: Cost of Goods Sold
Variable (150,000 x 600,000/500,000)	180,000
Fixed	50,000	$230,000	38.33%
Gross Profit		$370,000	61.67%
SG&A
Variable (25,000 x 600,000/500,000)	30,000
Fixed	75,000	$105,000	17.50%
Depreciation		$50,000	8.33%
Operating Profit		$215,000	35.83%
Interest		$25,000	4.17%
Taxable Income		$190,000	31.67%
Taxes (28%)		$53,200	8.87%
Net Income		$136,800	22.80%