Question

Lilliput, a one-product mail-order firm, buys its product for $60 per unit and sells it for $151 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows.

  

LILLIPUT COMPANY Income Statement For The Month Ended December 31, 2011
Sales	$	1,510,000
Cost of goods sold		600,000
Gross profit		910,000
Expenses
Sales commissions (10%)		151,000
Advertising		242,000
Store rent		26,100
Administrative salaries		50,500
Depreciation		60,500
Other expenses		14,100
Total expenses		544,200
Net profit	$	365,800

  

Management expects December’s results to be repeated in January, February, and March of 2012 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales will increase at a rate of 10% each month for the next three months (beginning with January) if the item's selling price is reduced to $136 per unit and advertising expenses are increased by 10% and remain at that level for all three months. The cost of its product will remain at $60 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.

  

Required:

1.	Prepare budgeted income statements for each of the months of January, February, and March that show the expected results from implementing the proposed changes. (Input all amounts as positive values. Omit the "$" sign in your response.)

  

LILLIPUT COMPANY Budgeted Income Statement For Months of January, February, and March
	January	February	March
(Click to select)DepreciationSales commissionsSalesInterest expenseAdvertising	$	$	$
(Click to select)Cost of goods soldSales commissionsInterest expenseAdvertisingDepreciation
(Click to select)Gross lossGross profit
Expenses
(Click to select)Interest expenseSalesRent expenseCost of goods soldSales commissions
(Click to select)SalesCost of goods soldInterest expenseRent expenseAdvertising
(Click to select)Store rentCost of goods soldSalesInterest expenseUtilities expense
(Click to select)Cost of goods soldAdministrative salariesRent expenseInterest expenseSales
(Click to select)Cost of goods soldSalesDepreciationInterest expenseRent expense
(Click to select)Other expensesInterest expenseSalesCost of goods soldRent expense
Total expenses
(Click to select)Net profitNet loss	$	$	$

Answer 1

Budgeted income statement for jan,feb, march
			jan	feb	march
Sale			1496000	1645600	1810160
cost of goods sold			660000	726000	798600
gross profit (A)			836000	919600	1011560
expenses
sale commission			149600	164560	181016
advertising (242000*1.10)			266200	266200	266200
store rent			26100	26100	26100
administrative salary			50500	50500	50500
depreciation			60500	60500	60500
other exp			14100	14100	14100
total expenses (B)			567000	581960	598416
net income (A)-(B)			269000	337640	413144
INCREASE VOLUME BY 10% PER MONTH
			UNIT	SALE @136	COGS-60
december 1510000/151			10000
jan			11000	1496000	660000
feb			12100	1645600	726000
march			13310	1810160	798600