Last year, a firm had net income of $46,500 last year on sales of $326,000. Sales are expected to be $365,120 next year. This firm uses the percentage of sales approach when compiling pro forma statements. What will be the projected net income?

Question

Quizplus · Accepted Answer

To find out the projected net income, first, we need to calculate the firm's net income as a percentage of its sales:

Net income as a percentage of sales = Net income / Sales
Net income as a percentage of sales = $46,500 / $326,000
Net income as a percentage of sales = 0.1425 or 14.25%

Next, we can use this percentage to estimate the firm's net income for next year:

Projected net income = Sales x Net income as a percentage of sales
Projected net income = $365,120 x 0.1425
Projected net income = $52,080

Therefore, the projected net income is $52,080, and the best choice is B.

Last Year, a Firm Had Net Income of $46,500 Last