Merline Manufacturing makes its product for $50 per unit and sells it for $140 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows.

Management expects Decembers results to be repeated in January, February, and March of 2018 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 $125 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.

MERLINE MANUFACTURING Income Statement For Month Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses $1,400,000 500,000 900,000 sales commissions (10%) Advertising Store rent Administrative salaries Depreciation-Office eguipment Other expenses Total expenses 140,000 220,000 25,000 45,000 55,000 13,000 498,000 $402,000 Net income