Question

Merline Manufacturing makes its product for $65 per unit and sells it for $137 per unit....

Merline Manufacturing makes its product for $65 per unit and sells it for $137 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows.

MERLINE MANUFACTURING
Income Statement
For Month Ended December 31, 2017
Sales $ 1,370,000
Cost of goods sold 650,000
Gross profit 720,000
Operating expenses
Sales commissions (10%) 137,000
Advertising 214,000
Store rent 24,700
Administrative salaries 43,500
Depreciation—Office equipment 53,500
Other expenses 12,700
Total expenses 485,400
Net income $ 234,600


Management expects December’s results to be repeated in January, February, and March of 2018 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 $122 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 $65 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.

Required:
Prepare budgeted income statements for each of the months of January, February, and March that show the expected results from implementing the proposed changes. (Enter your final answers in whole dollars.)

MERLINE MANUFACTURING
Budgeted Sales
For Months of January, February, and March, 2018
January February March

Budgeted sales (dollars)

Budgeted sales (in units)

Budgeted sales (in units)

Budgeted selling price per unit

Budgeted sales (in dollars)
MERLINE MANUFACTURING
Budgeted Income Statement
For Months of January, February, and March, 2018
January February March

Accounts payable

Accounts receivable

Accumulated depreciation

Administrative salaries expense

Accounts payable

Accounts receivable

Accumulated depreciation

Administrative salaries expense

Advertising expense

Gross profit

Gross loss

Expenses
Sales commissions
Advertising
Store rent
Administrative salaries
Depreciation—Office equipment
Other expenses
Total expenses

Net income

Net loss

$ $ $

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