The marketing department of Metroline Manufacturing estimates that its sales in 2013 will be $1.5 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $70,000 in cash dividends during 2013. Metroline Manufacturing€™s income statement for the year ended December 31, 2012, is given on page 152, 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 the year ended December 31, 2013.
b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2013.
c. Compare and contrast the statements developed in parts a and b. Which statement probably provides the better estimate of 2013 income? Explainwhy.

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Metroline Manufacturing Income Statement for the Year Ended December 31, 2012 Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2012 Sales revenue $1,400,000 Cost of goods sold Less: Cost of goods sold910,000 490,000 120,000 $ 370,000 35.00 Fixed cost Variable cost Total costs $210,000 700,000 $910,000 Gross profits Less: Operating expenses Operating profits Less: Interest expense Operating expenses Net profits before taxes 335,000 40%) Net profits after taxes 201,000 Fixed expenses Variable expenses Total expenses 36,000 84,000 $120,000 Less: Taxes(rate 134,000 121. Less: Cash dividends 66,000 To retained earnings