Complete the revised pro forma income statement below. In the process refer back to Figure 2. The original pro forma income statement for 2009 and the assumptions in Table 1.
Figure 2:
Pro Forms Income Statement 2009
Sales (1,000,000 units @ $30/unit = $30,000,000
-Fixed Costs (includes $1,000,000 in deprec.) = $2,000,000
-Total Variable Costs (1,000,000 unites @ $25.00/unit) = $25,000,000
Operating Income (EBIT) = $3,000,000
-Interest (10.75% x $2,000,000) = $215,000
Earnings before taxes $2,785,000
-Taxes (35%) $ 974,750
Earnings after taxes $1,810,250
Shares $2,000,000
Earnings per share $.91
Table 1 Assumptions:
1. Sales will remain constant at 1,000,000 unites at $30/unit.
2. Fixed costs will increase from $2,000,0000 to $5,800,000, a gain of $3,800,000.
(depreciation expense will be $2,800,000 and this will be shown as a footnote in the 2009 pro forms income statement)
3. Variable cost per unit will be reduced from $25 to $18.80. A total of 1,000,000 unites will still be sold. The reduction in variable costs per unit is a direct result of the increased fixed costs and the associated automation.
4. Interest expense will reflect that there is now $12 million in long-term debt in the form of bonds payable at 10.75% Then million dollars of new debt is being added to $2 million of old debt.
5. Shares outstanding are now at a level of 2,320,000. Three hundred and twenty thousand new shares are being added to the 2,000,000 old shares currently outstanding.