Metroline Manufacturing

Income Statement

for the Year Just Ended

Sales revenue

$ $1$ comma $398$ comma $000$

$$Less: Cost of goods sold

$911$ comma $000$

Gross profits

$ $487$ comma $000$

$$Less: Operating expenses

$125$ comma $000$

Operating profits

$ $362$ comma $000$

$$Less: Interest expense

$35$ comma $000$

Net profits before taxes

$ $327$ comma $000$

$$Less: Taxes $($rate equals $40\%)$

$130$ comma $800$

Net profits after taxes

$ $196$ comma $200$

$$Less: Cash dividends

$68$ comma $000$

To retained earnings

Modifying $ $128$ comma $200$ with double underline

Metroline Manufacturing

Breakdown of Costs and Expenses

into Fixed and Variable Components

for the Year Just Ended

Cost of goods sold

$$Fixed cost

$ $210$ comma $000$

$$Variable cost

$701$ comma $000$

Total cost

Modifying $ $911$ comma $000$ with double underline

Operating expenses

$$Fixed expenses

$ $38$ comma $000$

$$Variable expenses

$87$ comma $000$

Total expenses

Pro forma income statement$$The marketing department of Metroline Manufacturing estimates that its sales next year will be $ $1\mathrm{.}52$ million. Interest expense is expected to remain unchanged at $ $35$ comma $000,$ and the firm plans to pay $ $73$ comma $000$ in cash dividends. Metroline$$ Manufacturing's income statement for the previous year is given LOADING...$,$ 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.

Question content area bottom

Part $1$

a$.$ Use the $$percent$-$of$-$sales method to prepare a pro forma income statement for the year ended December$31,2020.$