Pro forma income statement-Scenario analysis Allen Products, Inc., wants to do a scenario analysis for the...
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Pro forma income statement-Scenario analysis Allen Products, Inc., wants to do a scenario analysis for the coming year. The pessimistic prediction for sales is $893,000; the most likely amount of sales is $1,127,000; and the optimistic prediction is $1,276,000. Allen's income statement for the most recent year is shown here a. Use the percent-of-sales method, the income statement for December 31, 2015, and the sales revenue estimates to develop pessimistic, most likely, and optimistic pro forma income statements for the coming year. b. Explain how this method could result in overstatement of profits for the pessimistic case and understatement of profits for the most likely and optimistic cases. c. Restate the pro forma income statements prepared in part a. to incorporate the following assumptions about the 2015 costs: $262,407 of the cost of goods sold is fixed; the rest is variable. $226,886of the operating expenses is fixed; the rest is variable. All the interest expense is fixed. (Please see: .). d. Compare your findings in part c. to your findings in part a. Do your observations confirm your explanation in part b? a. Use the percent-of-sales method, the income statement for December 31, 2015, and the sales revenue estimates to develop pessimistic, most likely, and optimistic pro forma income statements for the coming year. Complete the pro forma income statement for the year ending December 31, 2016 that is shown below (pessimistic scenario): (Round the percentage of sales to one decimal place and the pro forma income statement accounts to the nearest dollar.) Pro Forma Income Statement Allen Products, Inc. for the Year Ended December 31, 2016 Pessimistic Sales Less: Cost of goods sold $ Gross profits Less: Operating expense Operating profits Less: Interest expense Net profits before taxes Taxes (30%) Net profits after taxes % EA % $ EA SA EA % Pro forma income statement-Scenario analysis Allen Products, Inc., wants to do a scenario analysis for the coming year. The pessimistic prediction for sales is $893,000; the most likely amount of sales is $1,127,000; and the optimistic prediction is $1,276,000. Allen's income statement for the most recent year is shown here a. Use the percent-of-sales method, the income statement for December 31, 2015, and the sales revenue estimates to develop pessimistic, most likely, and optimistic pro forma income statements for the coming year. b. Explain how this method could result in overstatement of profits for the pessimistic case and understatement of profits for the most likely and optimistic cases. c. Restate the pro forma income statements prepared in part a. to incorporate the following assumptions about the 2015 costs: $262,407 of the cost of goods sold is fixed; the rest is variable. $226,886of the operating expenses is fixed; the rest is variable. All the interest expense is fixed. (Please see: .). d. Compare your findings in part c. to your findings in part a. Do your observations confirm your explanation in part b? a. Use the percent-of-sales method, the income statement for December 31, 2015, and the sales revenue estimates to develop pessimistic, most likely, and optimistic pro forma income statements for the coming year. Complete the pro forma income statement for the year ending December 31, 2016 that is shown below (pessimistic scenario): (Round the percentage of sales to one decimal place and the pro forma income statement accounts to the nearest dollar.) Pro Forma Income Statement Allen Products, Inc. for the Year Ended December 31, 2016 Pessimistic Sales Less: Cost of goods sold $ Gross profits Less: Operating expense Operating profits Less: Interest expense Net profits before taxes Taxes (30%) Net profits after taxes % EA % $ EA SA EA %
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Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
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