The marketing department of Metroline Manufacturing

estimates that its sales in 2016 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 2016. Metroline Manufacturings income statement for the year ended

December 31, 2015, and a breakdown of the firms cost of goods sold and operating

expenses into their fixed and variable components are given below.

a. Use the percent-of-sales method to prepare a pro forma income statement for the

year ended December 31, 2016.

b. Use fixed and variable cost data to develop a pro forma income statement for the

year ended December 31, 2016.

c. Compare and contrast the statements developed in parts a and b. Which statement

probably provides the better estimate of 2016 income? Explain why.