Company prepared the following budgeted income statement for the first quarter of

2016 :

ShanerShaner

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

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 %.

Shaner Company

Budgeted Income Statement

For the Quarter Ended March 31, 2016

January

February

March

Total

Sales Revenue

(20% increase per month)

$8,000

$9,600

$11,520

$29,120

Cost of Goods Sold

(40% of sales)

3,200

3,840

4,608

11,648

Gross Profit

4,800

5,760

6,912

17,472

S and A Expenses

($2,000 + 10% of sales)

2,800

2,960

3,152

8,912

Operating Income

2,000

2,800

3,760

8,560

Income Tax Expense

(30% of operating income)

600

840

1,128

2,568

Net Income

$1,400

$1,960

$2,632

$5,992