Serial Problem Business Solutions LO P3 Santana Rey expects second quarter 2020 sales of Business Solutions's line of computer furniture to be the same as the first quarter's sales (reported below) without any changes in strategy. Monthly sales averaged 38 desk units (sales price of $1180) and 13 chairs (sales price of $430) BUSINESS SOLUTION Computer Furniture Segment Segment Income Statement Tor Quarter Ended March 31, 2020 Sales $151,290 Cost of goods sola! 122.440 Cross profit 38,850 Expenses Sales commissions (105) 15,129 Advertising expenses 6.900 Other fixed expenses 15,900 Total expenses 37,929 Net income 921 Reflects revenue and expense activity only related to the computer furniture segment. Revenue: (114 desks $1,180) (39 chairs * $430) - $134,520 $16,770 - $151,290 Cost of goods sold: (114 desks * $680) + (39 chairs $180) $27.900 - $112,440 Santana Rey believes that sales will increase each month for the next three months (April, 46 desks, 25 chairs: May, 50 desks, 28 chairs; June, 54 desks, 31 chairs) if selling prices are reduced to $1050 for desks and $380 for chairs and advertising expenses are increased by 10% and remain at that level for all three months. The products' variable cost will remain at $680 for desks and S180 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $9,300 and other fixed expenses will remain at $5,300 per month Reflects revenue and expense activity only related to the computer furniture segment Revenue: (114 desks * $1180) + (39 chairs * $430) = $134,520 - $16.770 = $151,290 Cost of goods sold: (114 desks * $680) + (39 chairs $180) $27.900 = $112,440 Santana Rey believes that sales will increase each month for the next three months (April, 46 desks, 25 chairs; May, 50 desks, 28 chairs; June, 54 desks, 31 chairs) if selling prices are reduced to $1,050 for desks and $380 for chairs and advertising expenses are Increased by 10% and remain at that level for all three months. The products' variable cost will remain at $680 for desks and $180 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $9,300 and other fixed expenses will remain at $5,300 per month Required: 1. Prepare budgeted income statements for the computer furniture segment for each of the months of April, May, and June that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month. 2. Recommend whether Santana should implement the proposed changes. Hint Compare quarterly income for the proposed April- May-June period to the quarterly income for the January-February March period. Required 1 Required 2 Prepare budgeted Income statements for the computer furniture segment for each of the months show the expected results from implementing the proposed changes. Use a three-column format, month. (Negative balances and should be indicated with minus sign.) BUSINESS SOLUTIONS-COMPUTER FURNITURE SEGMENT Budgeted Income Statements For Months of April, May, and June April May June 0 0 0 Expenses Sales commissions Advertising Other fixed expenses Total expenses Net income (loss) 0 0 0 0 0 Required 1 Required 2 >
