Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bush, Chaney, Obama and Biden Piece Works, Inc., a one-product mail order firm, buys its product for $60 per unit and sells it for $130

Bush, Chaney, Obama and Biden Piece Works, Inc., a one-product mail order firm, buys its product for $60 per unit and sells it for $130 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December 2012 income statement is on the attached handout.

Management expects December's results to be repeated in January and February 2013 without any change in strategy. Management, however, has an alternative plan. It believes the unit sales with increase at a rate of 10% each month for the next two months (beginning with January) if the item's selling price is reduced to $115 per unit and advertising expenses are increased by 25% over their previous cost and remain at the new level for those two months. The cost of its product will remain at $60 per unit, the sales staff will continue to earn a 10% commission on each sale and the remaining expenses will stay the same.

Required:

1. Prepare budgeted income statements for each of the months of January and February that show the expected results from implementing the proposed changes. Use a two column format, with one column for each month.

2. Use the budgeting income statements from Part 1 to recommend whether management should implement the proposed changes. Explain your answer.

Bush, Chaney, Obama and Biden Piece Works, Inc.

INCOME STATEMENT

For the Month Ended December 31, 2012

Sales

1,300,000

less: Cost of Goods Sold

(600,000)

Gross profit

700,000

Expenses

Sales commissions (10%)

130,000

Advertising

200,000

Store rent

24,000

Administrative salaries

40,000

Depreciation

50,000

Other expenses

12,000

Total expenses

456,000

Net income

244,000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Terminology

Authors: Michael P Griffin

1st Edition

1423229371, 9781423229377

More Books

Students also viewed these Accounting questions