Table 4.6 Income Statement

Essay

Table 4.6
Income Statement
Ace Manufacturing, Inc.
For the Year Ended December 31, 2015
-Ace Manufacturing, Inc., is preparing pro forma financial statements for 2016. The firm utilized the percent-of-sales method to estimate costs for the next year. Sales in 2015 were $2 million and are expected to increase to $2.4 million in 2016. The firm has a 40 percent tax rate.
(a) Given the 2015 income statement in Table 4.6, estimate net profit and retained earnings for 2016.
(b) If $200,000 of the cost of goods sold and $40,000 of selling expense are fixed costs; and the interest expense and dividends are not expected to change, what is he dollar effect on net income and retained earnings? What is the significance of this effect?