Pro forma income statement-Scenario analysis Allen Products LP, wants to do a scenario analysis for the coming year. The pessimistic prediction for sales is $909,000; the most likely amount of sales is $1,132,000; and the optimistic prediction is $1,286,000. Allens income statement for the most recent year is shown below. 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 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 the 2019 costs: $237,067 of the cost of goods sold is fixed; the rest is variable. $208,530 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?

Use the percent-of-sales method, the income statement for December 31, 2019, and the sales revenue estimates to developpessimistic, most likely, and optimistic pro forma income statements for the coming year.

Complete the pro forma income statement for the year ending December 31, 2020 that is shown below (pessimistic scenario): (Round the percentage of sales to one decimal place and the pro forma income statement accounts to the nearest dollar.)

Allen Products, Inc. Income Statement for the Year Ended December 31, 2019 Sales revenue $937,800 Less: cost of good sold 410,756 Gross profits $527,044 Less: operating expenses 256,957 Operating profits $270,087 Less: interest expense 29,072 Net profit before taxes $241,015 Less: taxes (rate 25%) 60,254 Net profits after taxes $180,761

Sales revenue $937,800 Less: cost of good sold Fixed 237,067 Variable 173,689 Gross profits $527,044 Less: operating expenses Fixed 208,530 Variable 48,427 Operating profits $270,087 Less: interest expense 29,072 Net profit before taxes $241,015 Less: taxes (rate 25%) 60,254 Net profits after taxes $180,761