Question

he marketing department of Metroline Manufacturing estimates that its sales in 2013 will be $ 1.5 million. Interest expense is expected to remain unchanged at $ 35,000, and the firm plans to pay $ 70,000 in cash dividends during 2013. Metroline Manufacturing’s income statement for the year ended December 31, 2012, is given below 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 year ended December 31, 2013.
b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2013
c. Compare and contrast the statement developed in parts a and b. Which statement probably provides the better estimate of 2013 income? Explain why.
Metroline Manufacturing
Income Statement
For the year Ended December 31, 2012
Sales revenue
Less: Cost of Goods Sold
Gross profits
Less: Operating Expense
Operating profits
Less: Interest Expenses
Net profit before taxes
Less: Taxes (60%)
Net profit after taxes
Less: Cash dividends
Retained Earnings
$ 1,400,000
(910,000)
490,000
(120,000)
370,000
(35,000)
335,000
(134,000)
201,000
(66,000)
135,0000


Metroline Manufacturing
Breakdown of Costs and Expenses
Into Fixed an Variable Components
For the year Ended December 31, 2012
Cost of Goods Sold
​Fixed cost
​Variable cost
​Total costs
Operating Expenses
​Fixed expenses
​Variable expenses
​Total expenses

$210,000
700,000
$910,000

$36,000
84,000
$120,000

Answer 1

Answer:

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Explanation: