Pro forma income statement-Scenario analysis Allen Products, Inc., wants to do a scenario analysis for the coming year. The pessimistic prediction for sales is $901,000; the most likely amount of sales is $1,129,000, and the optimistic prediction is $1,286,000. Allen's income statement for the most recent year is shown here a. Use the percent-of-sales method, the income statement for last year, and the sales revenue estimates to develop pessimistic, most likely, and optimistic pro forma income statements for the coming year. b. Explain how this method could result in overstatement of profits for the pessimistic case and 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 last year's costs: $251,690 of the cost of goods sold is fixed; the rest is variable. $191,694 of the operating expenses is fixed; the rest is variable. All the interest expense is fixed. (Please see: :) d. Compare your findings in part c. to your findings in part a. Do your observations confirm your explanation in part b? Allen Products, Inc. Income Statement for the Year Just Ended Sales revenue $938,500 Less: cost of good sold 436,403 Gross profits $502,097 Less: operating expenses 242,133 Operating profits $259,964 Less: interest expense 30,032 Net profit before taxes $229,932 Less: taxes (rate 30%) 68,980 Net profits after taxes $160,952 Allen Products, Inc. Income Statement for the Year Just Ended Sales revenue $938,500 Less: cost of good sold Fixed 251,690 Variable 184,713 Gross profits $502,097 Less: operating expenses Fixed 191,694 Variable 50,439 Operating profits $259,964 Less: interest expense 30,032 Net profit before taxes $229,932 Less: taxes (rate 30%) 68,980 Net profits after taxes $160,952 Pro Forma Income Statement Allen Products, Inc. Pessimistic $ $ % $ % Sales Less: Cost of goods sold Gross profits Less: Operating expense Operating profits Less: Interest expense Net profits before taxes Taxes (30%) % $ $ $ $ $ $ Net profits after taxes