#1. The marketing department of Metroline Manufacturing estimates that its sales in 2010 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 2010 to preferred stock shareholders. Common shareholders have a total of 1000 shares. Its income statement and costs of goods sold and operating expenses from last year are given below. Metroline Manufacturing, Inc. for the Year Ended December 31, 200 Sales Less: Cost of goods sold (0.65 sales) 1.000 Gross profits Less: Operating expenses (0086. sales) 120000 Operating profits Less: Interest expense Net profits before taxes Less: Taxes (040 NPBT Net profits after taxes Less: Cash dividends To retained carnings $1,400,000 S 490,000 S370,000 35,000 S 335,000 34.000 S 201,000 66.000 Costs of Goods Sold Fixed costs = $210,000 Variable costs = $700,000 (which is 50% of sales) Operating Expenses: Fixed expenses = $36,000 Variable expenses = S84 ,000 (which is 6% of sales) a) Use the percent-of sales method to compute the operating profits in a pro forma income statement for the year ended December 31, 2010. b) Assume that fixed costs and fixed expenses stay the same in 2010 and that the variable costs are 50% of sales and variable expenses are 6% of sales. Use the fixedand variable cost and expense data to compute the operating profits in a pro forma income statement for the year ended December 31, 2010. c) Which method will give the highest earnings per share ending December 31, 2010? Calculate it for both methods