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Merline, a one-product mail-order firm, buys its product for $55 per unit and sells it for $135 per unit. The sales staff receives a 10%

image text in transcribedMerline, a one-product mail-order firm, buys its product for $55 per unit and sells it for $135 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows. MERLINE COMPANY Income Statement For Month Ended December 31, 2013 Sales $ 1,350,000 Cost of goods sold 550,000 Gross profit 800,000 Expenses Sales commissions (10%) 135,000 Advertising 210,000 Store rent 24,500 Administrative salaries 42,500 Depreciation 52,500 Other expenses 12,500 Total expenses 477,000 Net income $ 323,000 Management expects Decembers results to be repeated in January, February, and March of 2014 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales will increase at a rate of 10% each month for the next three months (beginning with January) if the item's selling price is reduced to $120 per unit and advertising expenses are increased by 25% and remain at that level for all three months. The cost of its product will remain at $55 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same. Required: Prepare budgeted income statements for each of the months of January, February, and March that show the expected results from implementing the proposed changes.

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