Bells manufacturing estimates that the sales for the 2016 financial year will be $2.25 million. No new borrowing was obtained and, therefore, the interest expense remained unchanged at $24,500. Bells Manufacturing is planning on paying cash dividends of $85,000 during 2016. Refer to the financial data in the table while answering the following
a. Compile the pro forma income statement for the year ended December 31, 2016, using the percentage of sales method.
b. Compile the pro forma income statement for the year ended December 31, 2016, using the fixed and variable cost data
c. As the financial manager, which of the two pro forma statements would you regard as more accurate, explain.
Bell Manufacturing
Income Statement for the Year
Ended December 31, 2015
Sales Revenue $1,800,000
Less Cost of Goods sold $1,100,000
Gross Profits $700,000
Less: Operating Expenses $450,000
Operating Profits $250,000
Less: Interest Expense $24,500
Net Profits before taxes $225,500
Less: Taxes (rate = 40%) $90,200
Net Profit after taxes $135,300
Less: Cash Dividends $85,000
To retained earnings $50,300
Bell Manufacturing Breakdown
Of Cost and Expenses into Fixed
And Variable Components for the
Year Ended December 31, 2015
Cost of goods sold
Fixed cost $750,000
Variable cost $350,000
Total Costs $1,100,000
Operating Expenses
Fixed expenses $155,000
Variable expenses $295,000
Total Expense $450,000