Question
Merline Manufacturing makes its product for $70 per unit and sells it for $138 per unit. The sales staff receives a 10% commission on the
Merline Manufacturing makes its product for $70 per unit and sells it for $138 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, 2017 | |||
Sales | $ | 1,380,000 | |
Cost of goods sold | 700,000 | ||
Gross profit | 680,000 | ||
Operating expenses | |||
Sales commissions (10%) | 138,000 | ||
Advertising | 216,000 | ||
Store rent | 24,800 | ||
Administrative salaries | 44,000 | ||
DepreciationOffice equipment | 54,000 | ||
Other expenses | 12,800 | ||
Total expenses | 489,600 | ||
Net income | $ | 190,400 | |
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 $123 per unit and advertising expenses are increased by 20% and remain at that level for all three months. The cost of its product will remain at $70 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. (Enter your final answers in whole dollars.)
MERLINE MANUFACTURING | |||
Budgeted Sales | |||
For Months of January, February, and March, 2018 | |||
January | February | March | |
Budgeted sales (dollars) Budgeted sales (in units) | |||
Budgeted sales (in units) Budgeted selling price per unit | |||
Budgeted sales (in dollars) | |||
MERLINE MANUFACTURING | |||
Budgeted Income Statement | |||
For Months of January, February, and March, 2018 | |||
January | February | March | |
Accounts payable Accounts receivable Accumulated depreciation Administrative salaries expense Advertising expense | |||
Accounts payable Accounts receivable Accumulated depreciation Administrative salaries expense Advertising expense Bank loan payable | |||
Gross profit Gross loss | |||
Expenses | |||
Sales commissions | 0 | ||
Advertising | |||
Store rent | |||
Administrative salaries | |||
DepreciationOffice equipment | |||
Other expenses | |||
Total expenses | 0 | 0 | 0 |
Net income Net loss | $0 | $0 | $0 |
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