Home > Free Essays > Business > Financial Management > Allen Products Inc and Metroline Manufacturing: Income Statements

Allen Products Inc and Metroline Manufacturing: Income Statements Essay

Exclusively available on IvyPanda Available only on IvyPanda
Updated: May 5th, 2022

Percent of Sales Method

This technique presupposes that most financial statements vary in terms of sales turnover. Moreover, the technique uses a theory suggesting that the company will perform well financially in future. In this regard, the theory applies many variables to predict the future. It assumes that the variable costs will always depend on the volume of sales realized. It therefore follows that these variables will always be in the form of a percentage of sales in a particular period. For example, a company will assume that the direct cost of materials will always vary with the volume of sales since the raw materials are assumed to drive sales (Trankle, & Gelau, 1992).

Allen Products Inc

Income Statement. For the year ended July 31, 2010.

Pessimistic ML Optimistic
Sales $900,000 $1,125,000 $1,280,000
Less cost of goods sold (45%) 405,000 506,250 576,000
Gross profits $495,000 $618,750 $704,000
Less operating expense (25%) 225,000 281,250 320,000
Operating profits $270,000 $337,500 $384,000
Less interest expense (3.2%) 28,800 36,000 40,960
Net profit before taxes $241,200 $301,500 $343,040
Taxes (25%) 60,300 75,375 85,760
Net profits after taxes $180,900 $226,125 $257,280

b) or quantities it expects to sell in a particular period based on the sales of the previous period. This would determine the current or future sales. However, not all costs will be variable. If the previous period was low, a company may under cast future sales based on poor results. This will lead to the understatement of sales in most situations. A previous period may have good results due to extra-ordinary conditions. If this is used to estimate or forecast future sales, it may give an overestimation of sales. As a result, profits may fall because the sales are overstated. Most companies face this problem. However, some companies have come up with strategies to counter the problem.

Allen Products Inc

Income Statement. For the year ended July 31, 2010.

Pessimistic ML Optimistic
Sales $900,000 $1,125,000 $1,280,000
Less cost of goods sold:
Fixed 250,000 250,000 250,000
Variable (18.3%) 164,700 205,875 234,240
Gross profits $485,300 $669,125 $795,760
Less operating expense
Fixed 180,000 180,000 180,000
Variable (5.8%) 52,200 65,250 74,240
Operating profits $253,100 $423,875 $541,520
Less interest expense 30,000 30,000 30,000
Net profit before taxes $223,100 $393,875 $511,520
Taxes (25%) 55,775 98,469 127,880
Net profits after taxes $167,325 $295,406 $383,640

The pessimist has lower profits in part c than in the first part whereas the optimistic has higher profits in part c than in the first part. This is as explained in part b above.

Metroline Manufacturing

Income Statement. For the year ended December 31, 2009.

Sales $1,500,000
Less: Cost of goods sold (65% sales) 975,000
Gross profits $525,000
Less: Operating expenses (8.6% sales) 129,000
Operating profits $396,000
Less: Interest expense 35,000
Net profits before taxes $361,000
Less: Taxes (40% NPBT) 144,400
Net profits after taxes $216,600
Less: Cash dividends 70,000
To retained earnings $146,600
1,500,000
975,000

Income Statement. For the year ended December 31, 2009.

Sales $1,500,000
Less: Cost of goods sold
Fixed cost 210,000
Variable cost (50% sales) 750,000
Gross profits $540,000
Less: Operating expense:
Fixed expense 36,000
Variable expense (6% sales) 90,000
Operating profits $414,000
Less: Interest expense 35,000
Net profits before taxes $379,000
Less: Taxes (40% NPBT) 151,600
Net profits after taxes $227,400
Less: Cash dividends 70,000
To retained earnings $157,400

Reference

Trankle, U.G., & Gelau, C. (1992). Maximization of subjective expected utility or risk control, experimental tests of risk homeostasis theory. Ergonomics, 35(1), 723.

This essay on Allen Products Inc and Metroline Manufacturing: Income Statements was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Essay sample written from scratch by
professional specifically for you?

801 certified writers online

Cite This paper
Select a referencing style:

Reference

IvyPanda. (2022, May 5). Allen Products Inc and Metroline Manufacturing: Income Statements. https://ivypanda.com/essays/allen-products-inc-and-metroline-manufacturing-income-statements/

Reference

IvyPanda. (2022, May 5). Allen Products Inc and Metroline Manufacturing: Income Statements. Retrieved from https://ivypanda.com/essays/allen-products-inc-and-metroline-manufacturing-income-statements/

Work Cited

"Allen Products Inc and Metroline Manufacturing: Income Statements." IvyPanda, 5 May 2022, ivypanda.com/essays/allen-products-inc-and-metroline-manufacturing-income-statements/.

1. IvyPanda. "Allen Products Inc and Metroline Manufacturing: Income Statements." May 5, 2022. https://ivypanda.com/essays/allen-products-inc-and-metroline-manufacturing-income-statements/.


Bibliography


IvyPanda. "Allen Products Inc and Metroline Manufacturing: Income Statements." May 5, 2022. https://ivypanda.com/essays/allen-products-inc-and-metroline-manufacturing-income-statements/.

References

IvyPanda. 2022. "Allen Products Inc and Metroline Manufacturing: Income Statements." May 5, 2022. https://ivypanda.com/essays/allen-products-inc-and-metroline-manufacturing-income-statements/.

References

IvyPanda. (2022) 'Allen Products Inc and Metroline Manufacturing: Income Statements'. 5 May.

Powered by CiteTotal, citing machine
More related papers