Pro-Forma Income Statement - Style Right Company
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I do not understand Pro-forma income statements & I have to create one. Here is the problem:
Style Right Company makes hair dryers. During the past few days, its accountants have been preparing the master budget for the coming year, 2006. To date, they have gathered the following projected data:
Sales revenue (at $20 per unit) $281,750
Variable selling expenses 17,250
Variable administrative expenses 40,250
Interest expense (not included in selling and administrative expenses) 1,725
Cost of goods sold (includes only variable costs) 103,500
Ending cash balance 30,475
Ending accounts receivable balance 47,150
Ending land balance 24,150
Ending buildings balance 71,300
Ending equipment balance 24,150
Ending accumulated depreciation?buildings balance 47,150
Ending accumulated depreciation?equipment balance 9,200
Ending direct materials inventory balance 16,100
Ending finished goods inventory balance 25,300
Ending accounts payable balance 6,900
Ending common stock balance 32,200
Retained earnings balance, January 1 64,050
Balance in paid-in capital in excess of par account 23,000
Ending accounts payable balance 6,900
Ending common stock balance 32,200
Retained earnings balance, January 1 64,050
Balance in paid-in capital in excess of par account 23,000
Fixed selling expenses 23,000
Fixed administrative expenses 28,750
Fixed manufacturing overhead 11,150
Income tax rate 35%
Required:
1. Prepare a pro-forma income statement (contribution margin approach) and balance sheet for the coming year. Any income taxes owed on the coming year's net income will be paid the following year.
2. By approximately how much would Style Right's profits increase if another 3,000 units were produced and sold for $20 each?
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Solution Summary
The solution explains how to prepare a pro-forma income statement using the contribution margin approach.
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