Question

Pro forma income statement: The marketing department of Metroline Manufacturing estimates that its sales in 2020 will be $ 1.51 million. Interest expense is expected to remain unchanged at $ 30000​, and the firm plans to pay $ 74000 in cash dividends during 2020. Metroline​ Manufacturing's income statement for the year ended December​ 31, 2019​, 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, 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
Income Statement
for the Year Ended December 31, 2012  
Sales revenue   $1,395,000
Less: Cost of goods sold   916,000
Gross profits   $479,000
Less: Operating expenses   130,000
Operating profits   $349,000
Less: Interest expense   30,000
Net profits before taxes   $319,000
Less: Taxes (rate = 40%)   127,600
Net profits after taxes   $191,400
Less: Cash dividends   66,000
To retained earnings   $125,400

  
Cost of goods sold  
Fixed cost   $203,000
Variable cost   713,000
Total cost   $916,000
Operating expenses  
Fixed expenses   $30,000
Variable expenses   100,000
Total expenses   $130,000

Answer 1

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v ( 04-03 ENG 14-02-207027 fx MG , MH Mi Mi MK ML MM MN MO MP a MF490 - X - ME 467 468 469 METROLINE 470 471 PERCENT OF SALES METHOD ENDED DEC 31, 2020 472 LESS 65.6631% 473 474 475 LESS 9.3190% LESS 476 477 478 479 480 SALES REVENUE COGS GROSS PROFIT OPERATING EXPENSES OPERATING PROFITS INTEREST PROFIT BEFORE TAXES TAXES NET PROFIT AFTER TAXES CASH DIVIDENDS RETAINED EARNINGS 1395000 916000 479000 130000 349000 30000 319000 127600 191400 66000 125400 1510000 991513 (1510000 x 65.6631%] 518487 140717 (1510000 x 9.3190%] 377770 30000 347770 139108 208662 74000 134662 LESS 481 LESS 482 483 484 485 486 487 b 488 489 1395000 1510000 LESS 490 SALES REVENUE COGS FIXED COSTS VARIANCE BEP, OL FL 210000 B-S profit loss 210000 DIFF ANALYSIS ... cycle ROE, BV MV ratio ratios DETROIT float SALES BUDGET dupont overhead ORDER ... :

| 0 = a = 3 3 4 5 w v ' ** 04:04 : ENG 14-02-207027 X - MF Fax MG MH Mi Mi MK ML MM MN MO MP a MM503 - 483 484 485 486 487 b 1395000 1510000 LESS 488 489 490 491 492 493 494 495 496 203000 713000 479000 51.1111% 203000 771778 [1510000 x 51.1111%] 535222 LESS SALES REVENUE COGS FIXED COSTS VARIABLE COSTS GROSS PROFIT OPERATING EXPENSES FIXED COSTS VARIABLE COSTS OPERATING PROFITS INTEREST PROFIT BEFORE TAXES TAXES NET PROFIT AFTER TAXES CASH DIVIDENDS RETAINED EARNINGS 7.1685% 497 LESS 498 30000 100000 349000 30000 319000 127600 191400 66000 125400 30000 108244 [1510000 x 7.1685%] 396978 30000 366978 146791 220187 74000 146187 LESS 499 500 LESS 501 502 503 504 505 506 ... cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS overhead ORDER ... :

| 0 = a = 3 3 4 5 w v 1* 04:04 ENG 14-02-207027 X MM321 - - MF Fax MG MH Mi Mi MK ML MM MN MO MP a 321 NO 326 327 328 329 330C 331 332 333 THE PROFIT UNDER PERCENT OF SALES METHOD IS LOWER THE BASIC REASON BEHIND LOWER PROFIT IS THAT IT ASSUMES THAT WITH INCREASE IN SALES, COGS & OPERATING COST ALSO INCREASE IN SAME PROPORTION AS IT WAS IN LAST YEAR 334 336 337 338 BASICALLY, WE HAVE TO MAKE DIFFERENTIATION BETWEEN FIXED COST & VARIABLE COST FIXED COSTS DO NOT CHANGE VARIABLE COST CHANGES WITH SALES SO SECOND METHOD (b) IS BETTER 339 342 343 344 ... cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS overhead ORDER ... :