Pro forma income statement   The marketing department ofMetroline Manufacturing estimates that its sales in 2020 will be$1.53 million. Interest expense is expected to remain unchanged at$34,000, and the firm plans to pay $74,000 in cash dividends during2020. Metroline Manufacturing's income statement for the year endedDecember31, 2019i is given (See belong Graph) ,along with abreakdown of the firm's cost of goods sold and operating expensesinto their fixed and variable components. a. Use thepercent-of-sales method to prepare a pro forma income statement forthe year ended December 31, 2020 b. Use fixed and variable costdata to develop a pro forma income statement for the year endedDecember 31, 2020. c. Compare and contrast the statements developedin parts a. and b. Which statement probably provides the betterestimate of 2020 income? Explain why.
Metroline Manufacturing Breakdown of Costs and Expenses intoFixed and Variable Components for the Year Ended December 31,2019
Cost of goods sold:
Fixed cost $202,000
Variable cost 700000
Total cost $902,000
Operating expenses Fixed expenses $39,000
Variable expenses 80000
Total expenses $119,000
Metroline Manufacturing Income Statement for the Year EndedDecember 31, 2019
Sales revenue $1,396,000
Less: Cost of goods sold 902000
Gross profits $494,000
Less: Operating expenses 119000
Operating profits $375,000
Less: Interest expense 34000
Net profits before taxes $341,000
Less: Taxes (rate = 40%) 136400
Net profits after taxes $204,600
Less: Cash dividends 63000
To retained earnings $141,600
