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 |
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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) |
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Budgeted sales (in units) Budgeted selling price per unit |
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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 |
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Gross profit Gross loss |
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Expenses | |||
Sales commissions | |||
Advertising | |||
Store rent | |||
Administrative salaries | |||
Depreciation—Office equipment | |||
Other expenses | |||
Total expenses | |||
Net income Net loss |
$ | $ | $ |
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