Problem 5 George Washington Company buys one kind of merchandise at $12 per unit and sells it at $25 per unit. The company's sales representatives receive a 20% commission on each sale. The March Income Statement shows the following information: George Washington Company Income Statement For Month Ended March 31 $500,000 Sales Cost of goods sold 240,000 Gross profit $260,000 Expenses: Sales commissions $100,000 Advertising 50,000 Store rent 5,000 Administrative salaries 10,000 Depreciation 6,000 Other 12,000 Total expenses $183,000 Net Income $77.000 The company's management believes that the March results will be repeated during April, May, and June without any changes in strategy. However, some changes are being considered. Management believes that unit sales will increase at a rate of 8% each month during the next quarter (including April) if the item's selling price is reduced to $22.50 per unit and if advertising expenses are increased by 40% and remain at that level for all three months. Even if these changes are made, the purchase price will remain at $12 per unit. Under this plan, the sales representatives would continue to earn a 20% commission and all other expenses would remain unchanged. Required: Using a three-column format, prepare budgeted income statements for April, May, and June that show the expected results of implementing the proposed changes. Based on the information in the budgeted income statements, recommend whether management should implement the plan.