The marketing department of Metroline Manufacturing estimates that its sales in 2013 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 2013. Metroline Manufacturing's income statement for the year ended December 31, 2012, is given on page 152, along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components.
a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2013.
b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2013.
c. Compare and contrast the statements developed in parts a and b. Which statement probably provides the better estimate of 2013 income? Explainwhy.
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