Problem 20-3A Manufacturing: Preparation and analysis of budgeted income statements LO P3 Merline Manufacturing makes its product for $70 per unit and sells it for $144 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, 2019 Sales $1,440,000 Cost of goods sold 700,000 Gross profit 740,000 Operating expenses Sales commissions (10%) 144,000 Advertising 228,000 Store rent 25,400 Administrative salaries 47,000 Depreciation-office equipment 57,000 Other expenses 13,400 Total expenses 514,800 Net income $ 225,200 Management expects December's results to be repeated in January, February, and March of 2020 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 $129 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 $70 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same. Required: 1. Prepare budgeted income statements for each of the months of January, February, and March that show the expected results from implementing the proposed changes. 2. Is net income for March expected to increase with the proposed strategy changes? Required 1 Required 2 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, 2020 January February Budgeted sales (in units) Budgeted selling price per unit $ 129 Budgeted sales in dollars) March March MERLINE MANUFACTURING Budgeted Income Statement For Months of January, February, and March, 2020 January February Sales Cost of goods sold Gross profit Expenses Sales commissions Advertising 228,000 228,000 Store rent 25,400 25,400 Administrative salaries 47,000 47,000 DepreciationOffice equipment 57,000 57,000 Other expenses 13,400 13,400 Total expenses 370,800 370,800 Net income $ (370,800) $ (370,800) $ 228,000 25,400 47,000 57,000 13,400 370,800 (370,800) Required 1 Required 2 >