Case 2 Put together budgeted income statement for April, May & June using the format :Sales-Costs of Goods Sold=Gross profit- Expenses = Net Income.

*Santana Rey expectes second - quarter 2016 sales of her new line of computer furniture to be the same as the firts quarter's sales (reported below) without any changes in strategy. Monthly sales averaged 40 desk units (sales price of $1250) and 20 chairs (sales price of $500)

sales ....................... $180.000

cost of goods sold.... $115.000

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Gross profit.............. 65.000

Expenses

sales commissions (10%) ..... 18.000

advertising expenses............. 9000

other fixed expenses .............18.000

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total expenses ........................ 45.000

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net income $20.000

santana rey believes that sales will increase each month for the next three months ( april 48 desks, 32 chairs; May, 52 desk, 35 chairs; June, 56 desk, 38 chairs) if selling prices are reduced to $1150 for desk and $450 for chairs, and advertising expenses are increased by 10% and remain at that level for all three months. the product variable cost will remain at $750 for desks and $250 for chairs. the sales staff will continue to earn a 10% commision. the fixed expenses will remain at $6000 per month.

required

1. prepare budgeted income statement for each of the months of april, may and june that show the expected results from implementing the proposed changes, use a three - column format, with one column for each month.

2.use the budgeted income statements from part 1 to recommended wether santana Rey should implement the proposed changes. explain.

HINTS: Income Statement in book for qtr ending 3/31/16 shows advertising expense $9,000 which is $3,000/month so add 10% increase each month to this amount. The cost of goods sold includes the variable cost for each desk sold (units sold x $750) & each chair sold (units sold x $250) + a fixed manufacturing cost $10,000 per month. Other fixed expenses remain at $6,000 per month($18,000 for qtr).