Preparing pro forma income statements with different assumptions Revell Corporation's budget planning meeting is like a zoo. Millard McFerrin, the credit manager, is naturally conservative and Dorothy Dester, the marketing manager, is the opposite. They have argued back and forth about the effect of various factors that influence the sales growth rate, such as credit policies and market potential. Based on the following current year data provided by Elaine Gann, the controller, Millard expects Revell's revenues to grow 5 percent each quarter above last year's level; Dorothy insists the growth rate will be 8 percent per quarter.

Historically, cost of goods sold is projected at 50 percent of sales revenue. Selling and administrative expenses are expected to be 12.5 percent of sales revenue.
Required
a. Prepare a pro forma income statement for the coming year using the credit manager's growth estimate.
b. Prepare a pro forma income statement for the coming year using the marketing manager's growth estimate.
c. Explain why two executives in the same company could have different estimates of futuregrowth.

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Second Fourth Quarter First Quarter Third Current Year Quarter Total Quarter Sales revenue Cost of goods sold Gross margin Selling & admin, expenses Net income S240,000 $200,000 $216,000 $314,000 $970,000 156,000 158,000 40,600 110,000 26,400 99,000 26,000 485,000 125,000 118,000 32,000 S 83,600 $ 73,000 $ 86,000 $117,400 $360,000