Preparing pro forma income statements with different assumptions Burch Corporation’s budget planning meeting is like a zoo. Brian Stull, the credit manager, is naturally conservative and May Simpson, 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 Andrea Martinez, the controller, Brian expects Burch’s revenues to grow 5 percent each quarter above last year’s level; May insists the growth rate will be 8 percent per quarter.

Historically, cost of goods sold has been about 50 percent of sales revenue. Selling and administrative expenses have been about 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 future growth