Question

Lilliput, a one-product mail-order firm, buys its product for $70 per unit and sells it for $132 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	$	1,320,000
Cost of goods sold		700,000
Gross profit		620,000
Expenses
Sales commissions (10%)		132,000
Advertising		204,000
Store rent		24,200
Administrative salaries		41,000
Depreciation		51,000
Other expenses		12,200
Total expenses		464,400
Net profit	$	155,600

  

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 $117 per unit and advertising expenses are increased by 15% and remain at that level for all three months. The cost of its product will remain at $70 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)Sales commissionsInterest expenseSalesAdvertisingDepreciation	$	$	$
(Click to select)Interest expenseCost of goods soldDepreciationSales commissionsAdvertising
(Click to select)Gross profitGross loss
Expenses
(Click to select)SalesInterest expenseCost of goods soldRent expenseSales commissions
(Click to select)Cost of goods soldInterest expenseAdvertisingRent expenseSales
(Click to select)Utilities expenseCost of goods soldSalesInterest expenseStore rent
(Click to select)Rent expenseInterest expenseCost of goods soldAdministrative salariesSales
(Click to select)Rent expenseDepreciationCost of goods soldInterest expenseSales
(Click to select)Rent expenseOther expensesSalesCost of goods soldInterest expense
Total expenses
(Click to select)Net lossNet profit	$	$	$

Answer 1