I APOLOGIZE IN ADVANCE IF THIS COMES OUT LOOKING JACKED UP...FIRST TIME!

Ivey Company prepared the following budgeted income statement for the first quarter of 2018:

Ivey Company
Budgeted Income Statement
For the Quarter Ended March 31, 2018
			January	February	March	Total
Net Sales Revenue		(20% increase per month)	$25,000	$30,000	$36,000	$91,000
Cost of Goods Sold		(20% of sales)	5,000	6,000	7,200	18,200
Gross Profit			20,000	24,000	28,800	72,800
S and A Expenses		($3,000 + 12% of sales)	6,000	6,600	7,320	19,920
Operating Income			14,000	17,400	21,480	52,880
Income Tax Expense		(20% of operating income)	2,800	3,480	4,296	10,576
Net Income			$11,200	$13,920	$17,184	$42,304

Ivey Company is considering two options. Option 1 is to increase advertising by $1,200 per month. Option 2 is to usebetter-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 25% 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 both options begin in January and January sales remain $25,000. Round all calculations to the nearest dollar.

2.

Which option should Ivey choose? Explain your reasoning.

Requirement 1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain $25,000. Round all calculations to the nearest dollar.

Begin by preparing the budgeted income statement for Option 1.

Ivey Company

Budgeted Income Statement

For the Quarter Ended March 31, 2018

		January
Sales Revenue		$25,000
Cost of Goods Sold		5,000
Gross Profit		20,000
S and A Expenses		7,200
Operating Income		12,800
Income Tax Expense		2,560
Net Income		$10,240

February

Enter any number in the edit fields and then click Check Answer.

FINAL PRODUCT SHOULD LOOK SOMETHING LIKE THIS:

Gambrell Company

Budgeted Income Statement

For the Quarter Ended March 31, 2018

		January
Sales Revenue
Cost of Goods Sold
Gross Profit
S and A Expenses
Operating Income
Income Tax Expense
Net Income

February

March

Total