Question

Lilliput, a one-product mail-order firm, buys its product for $70 per unit and sells it for $144 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	$	1,440,000
Cost of goods sold		700,000
Gross profit		740,000
Expenses
Sales commissions (10%)		144,000
Advertising		228,000
Store rent		25,400
Administrative salaries		47,000
Depreciation		57,000
Other expenses		13,400
Total expenses		514,800
Net profit	$	225,200

  

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 $129 per unit and advertising expenses are increased by 25% 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)DepreciationSalesInterest expenseSales commissionsAdvertising	$	$	$
(Click to select)DepreciationInterest expenseSales commissionsCost of goods soldAdvertising
(Click to select)Gross lossGross profit
Expenses
(Click to select)Cost of goods soldSales commissionsRent expenseInterest expenseSales
(Click to select)SalesRent expenseCost of goods soldAdvertisingInterest expense
(Click to select)SalesUtilities expenseStore rentInterest expenseCost of goods sold
(Click to select)Rent expenseSalesInterest expenseCost of goods soldAdministrative salaries
(Click to select)Rent expenseInterest expenseSalesCost of goods soldDepreciation
(Click to select)Other expensesInterest expenseSalesCost of goods soldRent expense
Total expenses
(Click to select)Net profitNet loss	$	$	$

Answer 1

the calculations are as follows