Question

In developing the pro forma income statement, we follow four important steps:

1) Compute other expenses.
2) Determine a production schedule.
3) Establish a sales projection.
4) Determine profit by completing the actual pro forma statement.

What is the correct order for these four steps?


A. 1,2,3,4

B. 3,2,4,1

C. 2,1,3,4

D. 3,2,1,4

Answer 1

The correct sequence for developing a pro forma income statement is establishing a sales projection; determining a production schedule; computing other expenses; and then determining profit by completing the statement. So, the correct option is D: 3,2,1,4.

Step-by-step explanation:

Creating a pro forma income statement is a critical task for businesses, as it helps to project future financial performance. The correct order of steps to develop a pro forma income statement are as follows:

1. Establish a sales projection: This forms the basis of the income statement as it dictates the revenue that will be generated.
2. Determine a production schedule: Once sales projections are set, this schedule aligns the production with expected sales volume.
3. Compute other expenses: With the production plan in place, all other expenses that are likely to be incurred are calculated.
4. Finally, determine profit by completing the actual pro forma statement: By comparing total revenue with total costs, which includes production and other expenses, the profit or loss can be ascertained.