Question

# The chapter 22 team discussion problem is presented below. If your team has three members, complete...

The chapter 22 team discussion problem is presented below.

• If your team has three members, complete part 1 only; each team member should prepare a budgeted income statement for a different month (April, May, or June).
• If your team has four members, complete parts 1 and 2; the first three team members will complete part 1 (April, May, and June, respectively), and the fourth team member will complete part 2.

The problem is reproduced below.

• For full credit on part 1: present the budgeted income statement for your month neatly, and show all calculations for your Sales and Cost of Goods Sold figures.
• For full credit on part 2: your recommendation should be a professional-quality full paragraph of 3-4 sentences.

IMPORTANT INSTRUCTIONS:

1. Navigate to your Group Homepage and use your Group's Announcement tool to decide among your teammates who will work on which parts (budgeted income statements for April, May, and June in part 1, and -- if your team has a fourth member -- the recommendation letter in part 2).

3. In teams that have 4 members, note that the person who completes part 2 will need to have access to the solutions to part 1 before they can complete their recommendation. Accordingly, the deadline for completing part 2 is 24 hours after the initial submission deadline.

4. For full credit, be sure to comment constructively on your teammates' posts.

CHAPTER 22 TEAM DISCUSSION PROBLEM

Kodiak Office Furniture expects second-quarter 2020 sales of its new line of computer furniture to be the same as the first quarter's sales (reported below) without any changes in strategy. Monthly sales averaged 40 desk units (sales price of \$1,250) and 20 chairs (sales price of \$500).

 Kodiak Office Furniture Income Statement For Quarter Ended March 31, 2020 Sales* \$180,000 Cost of goods sold** 115,000 Gross profit 65,000 Expenses Sales commissions (10%) 18,000 Advertising expenses 9,000 Other fixed expenses 18,000 Total expenses 45,000 Net income \$20,000

* Revenue: (120 desks x \$1,250) + (60 chairs x \$500) = \$150,000 + \$30,000 = \$180,000.

** Cost of goods sold: [variable portion = (120 desks x \$750) + (60 chairs x \$250)] + [fixed portion = \$10,000] = \$115,000.

You believe that sales will increase each month for the next three months (April, 48 desks, 32 chairs; May, 52 desks, 35 chairs; June, 56 desks, 38 chairs) if selling prices are reduced to \$1,150 for desks and \$450 for chairs, and advertising expenses are increased by 10% and remain at that level for all three months. The products' variable cost will remain at \$750 for desks and \$250 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs will be \$10,000 per month, and other fixed expenses will remain at \$6,000 per month.

Required

1. Prepare budgeted income statements for each of the months of April, May, and June that show the expected results from implementing the proposed changes.

2. Use the budgeted income statements from part 1 to recommend whether Santana Rey should implement the proposed changes. Explain.

Just do （JUNE）

Calculations for May:

Sales: 52 desks @ \$1150 = \$59,800 35 chairs @ \$450 = \$15,750 Total April Sales = \$75,550

Variable Costs:   52 desks @ \$750 = \$39,000 35 chairs @ \$250 = \$8,750 Total Costs of Goods Sold = \$47,750

Advertising: \$3000 per month x 10% = \$3300

Commissions: Sales of \$75,550 x 10% = \$7555

Fixed Expenses: \$6000 per month, unchanged

 Budgeted Income Statement - May Sales \$75,550 Cost of Goods Sold 47,750 Gross Profit 27,800 Operating Expenses Sales Commissions \$7555 Advertising 3300 Other Fixed Expenses 6000 16,855 Income before taxes \$10,945

 Budgeted Income Statement - June \$ \$ Sales (Note:1) 81500 Cost of Goods Sold (Note:2) 61500 Gross Profit 20000 Operating Expenses Sales Commissions (81500*10%) 8150 Advertising (3000*110%) 3300 Other Fixed Expenses 6000 17450 Income before taxes 2550 Note:1 Sales revenue: \$ Desks (56*1150) 64400 Chairs (38*450) 17100 Total 81500 Note:2 Cost of goods sold: \$ Variable costs: Desks (56*750) 42000 Chairs (38*250) 9500 Fixed costs 10000 Total 61500