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Pro forma income statement: Scenario analysis Allen Products LF. Wants to do a scenario analysis for the coming year. The pessimistic prediction for sales is
Pro forma income statement: Scenario analysis Allen Products LF. Wants to do a scenario analysis for the coming year. The pessimistic prediction for sales is $900,000; the most likely amount of sales is $1,125,000; and the optimistic prediction is $1,280,000. Allen's income statement for the most recent year follows. a Use the percent-of-sales method, the income statement for December 31,2019 , and the sales revenue estimates to develop pessimistic, most likely, and optimistic pro forma income statements for the coming year. b Explain how the percent-of-sales method could result in an overstatement of profits for the pessimistic case and an understatement of profits for the most likely and optimistic cases. c Restate the pro forma income statements prepared in part a to incorporate the following assumptions about the 2019 $250,000 of the cost of goods sold is fixed; the rest is variable. $180,000 of the operating expenses is fixed; the rest is variable. All the interest expense is fixed. d Compare your findings in part c to your findings in part a. Do your observations confirm your explanation in part b? Answers (insert your answers in the highlighted cells; use cell references, equations, and functions wherever possible) b the way can ovestate profits is by showing what it can generate but considers cost as variable to compensate the growth however it may be a fived cost and that can change the amounts and overstate its proffits
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