The marketing department of Metroline Manufacturing


estimates that its sales in 2016 will be $1.62 million. Interest expense is expected


to remain unchanged at $30,000, and the firm plans to pay $70,000 in cash dividends


during 2016. Metroline Manufacturing?s income statement for the year ended


December 31, 2015, and a breakdown of the firm?s 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