A proposed new investment has projected sales of $592,000. Variable costs are 41 percent of sales, and fixed costs are $135,000; depreciation is $53,000. Prepare a pro forma income statement assuming a tax rate of 22 percent. What is the projected net income?

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Areli

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A proposed new investment has projected sales of $592,000. Variable costs are 41 percent of sales, and fixed costs are $135,000; depreciation is $53,000. Prepare a pro forma income statement assuming a tax rate of 22 percent. What is the projected net income?

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Max Mendoza · Answer 1

The projected net income is $ 125,798.40

Explanation:

Income statement for the proposed investment:

Projected sales $592,000

less costs:

Variable costs (41%*$592,000) ($242,720)

fixed costs ($135,000)

depreciation ($53,000)

profit before tax $161,280

Tax at 22% (22%*$161,280) (35,481.60)

net income $125,798.40

The variable costs as the name indicates is dependent on the sales made since variable costs are expected to move in line with sales revenue recorded.