Metroline Manufacturing Income Statement for the Year Just Ended Sales revenue Less: Cost of goods sold...

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Metroline Manufacturing Income Statement for the Year Just Ended Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Cash dividends To retained earnings $1,394,000 915,000 $479,000 113,000 $366,000 32,000 $334,000 133,600 $200,400 68,000 $132,400 Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Just Ended Cost of goods sold Fixed cost Variable cost Total cost Operating expenses Fixed expenses Variable expenses Total expenses $204,000 711,000 $915,000 $36,000 77,000 $113,000 Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales next year will be $1.54 million. Interest expense is expected to remain unchanged at $32,000, and the firm plans to pay $66,000 in cash dividends. Metroline Manufacturing's income statement for the previous year is given, 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 next year. b. Use fixed and variable cost data to develop a pro forma income statement for next year. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of income? Explain why. Metroline Manufacturing Income Statement for the Year Just Ended Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Cash dividends To retained earnings $1,394,000 915,000 $479,000 113,000 $366,000 32,000 $334,000 133,600 $200,400 68,000 $132,400 Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Just Ended Cost of goods sold Fixed cost Variable cost Total cost Operating expenses Fixed expenses Variable expenses Total expenses $204,000 711,000 $915,000 $36,000 77,000 $113,000 Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales next year will be $1.54 million. Interest expense is expected to remain unchanged at $32,000, and the firm plans to pay $66,000 in cash dividends. Metroline Manufacturing's income statement for the previous year is given, 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 next year. b. Use fixed and variable cost data to develop a pro forma income statement for next year. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of income? Explain why.

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Part c The retained earnings are overstated by 1822... View the full answer