Study the financial information for reel mower units that James Colburn prepared for Rick Martino. Prepare a pro-forma income statement (labeled Table 1) assuming no changes in accounting policy for 2008 and assuming that the company sells 10,000 units each quarter at a selling price of $2,000 per unit (for a total of 40,000 units during the year). Also, assume selling, general and administrative expenses are the same as they were in 2007. If Rick Martino reports this result, do you think he would keep his job?

Proforma Income Statement for the year end 2008

2008 2007

$'000 $'000

Revenue 80,000 67,000

Cost of Goods Sold (62,000) (46,000)

Gross Profit 18,000 21,000

selling and Admin Expense (10,000) (10,000)

Income before Tax 8,000 11,000

Income Tax @35% (2,800) (3,850)

Net Income 5,200 7,150

Gross margin% 23% 31%

Net Income % 7% 11%

Revenue:

Quarter Sales unit Price per unit Total Revenue

1 10,000 $2,000 $20,000,000

2 10,000 $2,000 $20,000,000

3 10,000 $2,000 $20,000,000

4 10,000 $2,000 $20,000,000

$80,000,000

Explanation:

If Rick Martino presents this reports, he may not be able to keep his work.