Original sales Budget:

Sales Budget

(cost at $130)

January February March Quarter

Budgeted Units Sold 10,500 11,025 11,576 33,101

Budgeted Sales Price 200 200 200 200

Budgeted Sales Revenue 2,100,000 2,205,000 2,315,200 6,620,200

Pro-forma income statement

Sales$6,620,200

Cost of goods sold-$4,303,130

Gross profit$2,317,070

Selling and administrative$1,556,558

Operating income$760,512

Interest expense-$1,130

Income before taxes$759,382

Income tax expense-$227,815

Net income$531,567

Inventory Purchases Budget

January February March Quarter

Budgeted unit Sales 10,500 11,025 11,576 33,101

Budgeted Ending Inventory 2,205 2,315 2,431 2,431

Total materials required 12,705 13,340 14,007 35,532

Beginning Inventory 2,100 2,205 2,315 2,100

Budgeted Purchases 10,605 11,135 11,692 33,432

Cost per unit 130 130 130 130

Budgeted purchases Cost 1,378,650 1,447,550 1,519,960 4,346,160

Ending Inventory Budget

Beginning balance$273,000

Inventory purchases4,346,160

Less: Ending inventory316,030

Cost of goods sold4,303,130

The manager suggested to drop the sales price to $160 because this will increase the units sold, as follows

Sales Budget

(cost at 120) January February March Quarter

Budgeted Units Sold 10,700 11,449 12,250 34,399

Budgeted Sales Price 160 160 160 160

Budgeted Sales Revenue 1,712,000 1,831,840 1,960,000 5,503,840

with the increase of the units, the manager also suggested that he could negotiate with the supplier to lower the cost from

Original cost: $130 to

Negotiate cost to $120.

Should manager proceed with the new proposal?

Calculate and explain