Questions

1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain $15000. Round all calculations to the nearest dollar.

Option 1:

Option 2:

2. Which option should Nettle choose? Explain your reasoning

Nettle Company Budgeted Income Statement For the Quarter Ended March 31, 2018 January February March Total 21,600 $ 54,600 Net Sales Revenue (20% increase per month) $ 15,000 $ 18,000 $ 10,800 Cost of Goods Sold (60% of sales) 9,000 12,960 32,760 Gross Profit 6,000 7,200 8,640 21,840 (S2,200 10% of sales) S and A Expenses 3,700 4,000 4,360 12,060 Operating Income 3,200 9,780 2,300 4,280 1,956 Income Tax Expense (20% of operating income) 460 640 856 7,824 $ 1,840 $ 2,560 $ 3,424 S Net Income Option 1 is to increase advertising by $1,400 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 65% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 25% per month rather than 20%. Nettle Company Budgeted Income Statement For the Quarter Ended March 31, 2018 Total January February March Sales Revenue Cost of Goods Sold Gross Profit S and A Expenses Operating Income Income Tax Expense Net Income Nettle Company Budgeted Income Statement For the Quarter Ended March 31, 2018 Total January February March Sales Revenue Cost of Goods Sold Gross Profit S and A Expenses Operating Income Income Tax Expense Net Income