Dagmar Suppliers Ltd wants to do a scenario analvsis to assess possible profitability for 2021. The...

 

Transcribed Image Text:

Dagmar Suppliers Ltd wants to do a scenario analvsis to assess possible profitability for 2021. The company will consider three different sales scenarios. The pessimistic prediction of sales is R840 000, the most likely sales are R1 125 000 and the most optimistic prediction of sales is R1 350 000, Dagmar's statement of comprehensive income for 2020 is as follows: Dagmar Suppliers Ltd Statement of comprehensive income for the vear ended 31 December 2020 Rand Revenue Less: Cost of sales 950 000 446 500 503 500 Gross profit Less: Operating expenses Operating profit Finance cost 326 250 281 250 45 000 Profit before tax 177 250 Less: Income tax 53 175 Profit for the year 124 075 Required: Apply the percentage-of-sales method to the statement of comprehensive income for 2020 to develop the pessimistic and optimistic pro-forma statements of comprehensive income for 2021. Use the table format below to prepare your answer. 2.1. 2020 % of sales Pessimistic Optimistic Items (18) Explain why the percentage-of-sales method could result in an overstatement of profits for the pessimistic scenario and an understatement of profits for the optimistic scenario. (14) 2.2. Page 3 of Assignment Dagmar Suppliers Ltd wants to do a scenario analvsis to assess possible profitability for 2021. The company will consider three different sales scenarios. The pessimistic prediction of sales is R840 000, the most likely sales are R1 125 000 and the most optimistic prediction of sales is R1 350 000, Dagmar's statement of comprehensive income for 2020 is as follows: Dagmar Suppliers Ltd Statement of comprehensive income for the vear ended 31 December 2020 Rand Revenue Less: Cost of sales 950 000 446 500 503 500 Gross profit Less: Operating expenses Operating profit Finance cost 326 250 281 250 45 000 Profit before tax 177 250 Less: Income tax 53 175 Profit for the year 124 075 Required: Apply the percentage-of-sales method to the statement of comprehensive income for 2020 to develop the pessimistic and optimistic pro-forma statements of comprehensive income for 2021. Use the table format below to prepare your answer. 2.1. 2020 % of sales Pessimistic Optimistic Items (18) Explain why the percentage-of-sales method could result in an overstatement of profits for the pessimistic scenario and an understatement of profits for the optimistic scenario. (14) 2.2. Page 3 of Assignment

Answer rating: 100% (QA)

NOTE There is a calculation error in the Comprehensive Income statemen... View the full answer