# Question: The income statement for the year ended December 31 2009

The income statement for the year ended December 31, 2009, for Chico Co. follows:
Sales volume in 2010 is expected to increase by 15 percent because of a 5 percent decrease in selling price. Material costs are expected to increase 7 percent, but labor costs are expected to decrease by 10 percent due to increased automation at the company. Overhead is applied to production based on a percentage of direct labor costs; this percentage will increase by 5 percent because of the newly installed automated equipment. Seventy percent of the selling expenses are variable; the remainder is ﬁxed. All administrative costs are ﬁxed and are expected to increase by 20 percent in 2010. The company’s tax rate will not change.
Required:
(a) Prepare a pro forma income statement for the year ended December 31, 2010.
(b) If management wanted net income to be \$636,000 in 2010, what would selling price per unit (rounded to the nearest cent) have to be at the new sales volume? Prepare a pro forma income statement to prove your answer.

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