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    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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