Question

A proposed new investment has projected sales of $543,000. Variable costs are 46 percent of sales, and fixed costs are $129,500; depreciation is $50,250. Prepare a pro forma income statement assuming a tax rate of 21 percent. What is the projected net income? (Input all amounts as positive values. Do not round intermediate calculations.)

Answer 1

Pro forma Income Statement

Projected Sales $543,000

Variable costs 249,780

Contribution $293,220

Sales /Fixed costs 129,500

Depreciation 50,250

Pre-tax Income $113,470

Income Tax (21%) 23,828.70

After-tax Income $89,641.30

Step-by-step explanation:

This company's pro forma income statement shows the contribution to be made by a project and the projected after-tax income. With it management can decide whether to accept the project or not. Preparing this pro forma income statement also enables management to know the impact on profits that the project will make. When the project is complete, this pro forma income statement becomes a basis for reviewing the actual income statement to understand variances.