Suppliers, Inc. has current sales of $2,400 and a profit margin of 9%. The firm estimates that sales will decrease by 4% 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 9% of $2,400, which equals $216. With a 4% decrease in sales, next year's sales are expected to be 96% of $2,400, or $2,304. Since costs vary directly with sales, the profit margin remains at 9%, making the pro forma net income 9% of $2,304, which equals $207.36.