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Pro Forma Income Statement

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Technology Team manufactures laptops that sell for $2,200 each. Assume Technology Team does not maintain an inventory; all items produced are sold during the period. Thus, all production costs appear on the income statement. The company has fixed manufacturing overhead of $4,000,000 per year. The company's fixed selling and administrative expense is $3,000,000 per year. Other expenses are as follows:

Cost per Unit

Direct materials $1,200
Direct labor 150
Variable manufacturing overhead 50
Variable selling and administrative expense 30

Management at Technology Team believe sales for 2005 will be 10,000 units.

A. Create a pro forma income statement using Exhibit 3 as a guide.
B. Discuss how a pro forma income statement helps managers make better decisions.

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Solution Preview

A. Create a pro forma income statement using Exhibit 3 as a guide.

Pro Forma Income Statement
For the Quarter Ended March 31, 2005 in$

Panel A
Sales (Sales Price *Units to be Sold) 22000000
Less :
Direct Material 12000000
Direct Labor 1500000
Variable Manufacturing overhead 500000
Fixed Manufacturing ...

Solution Summary

Response helps in computing Pro Forma Income Statement