Question

If you are creating a pro forma income statement and projecting an increase in sales revenues of $100,000, your projected net income for the pro forma statement should be _____.

A. the same, since total costs will also increase by $100,000

B. $100,000 higher, since costs will not rise because the company sells more goods

C. higher, but not $100,000 higher, since some costs will increase and others will not

D. lower; the increase in taxes alone will eat up the extra profits

Answer 1

Option C is the answer
Fixed costs remain same even when output increases. Variable costs will increase with increase in output. Due to this, we cannot accurately estimate actual increase in net income