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

Soya Company is considering two options. Option 1 is to increase advertising by $1,200 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 45% 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 $8,000. Round all calculations to the nearest dollar.
2. Which option should Soya choose? Explain your reasoning.

Transcribed Image Text:

SOYA COMPANY Budgeted Income Statement For the Quarter Ended March 31, 2016 January February March Total | $ 8,000 3,200 $ 1 1,520 Sales Revenue Cost of Goods Sold Gross Profit S&A Expenses Operating Income Income Tax Expense Net Income (20% increase per month) $ 29,120 4,608 11,648 4,800 5,7606,117,472 2,800 2,960 3,12 8,912 3,760 8,560 9,600 3,840 (40% of sales) ($2,000 + 10% of sales) (30% of operating income) 2,000 2,800 1128 2,568 14001.960 2,632 5,992 600 840