Shaner Company prepared the following budgeted income statement for the first quarter of 2016:

Shaner Company is considering two options. Option 1 is to increase advertising by $900 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 15% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 25% per month rather than 20%.
Requirements
1. Prepare budgeted income statements for both options, assuming January sales remain $5,000. Round all calculations to the nearest dollar.
2. Which option should Shaner choose? Explain your reasoning.

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SHANER COMPANY Budgeted Income Statement For the Quarter Ended March 31, 2016 January FebruaryMarch Total Sales Revenue Cost of Goods Sold Gross Profit SBA Expenses Operating Income Income Tax Expense Net Income (20% increase per month) | $ 5,000 s 6,000- $ 7,200- $18,200 1,820 6,480 16,380 3,0003,100 3,220 9,320 7,060 978 2,118 $ 1,050 1,610 s2,282 4,942 (10% of sales) 500 600 5,400 720 4,500 ($2,500 + 10% of sales) 1,500 450 2,300 3,260 (30% of operating income) 690