Baker's Dozen has current sales of $1,400 and a profit margin of 7 percent. The firm estimates that sales will increase by 8% next year and that all costs will vary in direct relationship to sales. What is the pro forma net income?

Question

Quizplus · Accepted Answer

The current net income is calculated as 7% of $1,400, which is $98. Next year's sales are estimated to increase by 8%, making them $1,512 ($1,400 * 1.08). Since costs vary directly with sales, the profit margin remains at 7%, making the pro forma net income 7% of $1,512, which equals $105.84.

Baker's Dozen Has Current Sales of $1,400 and a Profit