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Merline Manufacturing makes its product for $50 per unit and sells it for $150 per unit. The sales staff receives a 10% commission on the
Merline Manufacturing makes its product for $50 per unit and sells it for $150 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows. MERLINE MANUFACTURING Income Statement For Month Ended December 31, 2015 1,500,000 Sales 500,000 Cost of goods sold 1,000,000 Gross profit Operating expenses 150,000 Sales commissions (10%) 240,000 Advertising 26,000 Store rent 50,000 Administrative salaries 60,000 Depreciation-Office equipment Other expenses 14,000 540,000 Total expenses Net income 460,000 Management expects December's results to be repeated in January, February, and March of 2016 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales w 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 $135 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 $50 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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