Trophy Company prepared the following budgeted income statement for the first quarter of 2021:

	January	February	March
Sales Revenue (15% increase per month)	$30,000	$34,500	$39,675
Cost of Goods Sold (45% of Sales)	$13,500	$15,525	$17,854
Gross Profit	$16,500	$18,975	$21,821
Selling & Admin Expenses ($2,500+9% of Sales)	$5,200	$5,605	$6,071
Operating Income (Before Taxes)	$11,300	$13,370	$15,751
Income Tax Expense (25% of Operating Income)	$2,825	$3,343	$3,938
Net Income	$8,475	$10,028	$11,813

Trophy Company is considering two options. Option 1 is to increase advertising by $800 per month. Option 2 seeks better production materials which will increase Cost of Goods Sold to 48% of Sales. Management projects each of these will increase sales by 22% per month rather than 15%.

Required:

1. Prepare Budgeted Income Statements for both Options, assuming both options begin in January. January sales will remain at $30,000.

2. Which option should Trophy Company choose? Explain your answer.

USE TEMPLATE BELOW

Option 1
Trophy Company
Pro Forma Income Statement
Quarter Ended March 31, 2019
	January	February	March	Total
Sales Revenue
Cost of Goods Sold
Gross Profit
S & A Expenses
Operating Income
Income Tax Expense
Net Income
Option 2
Trophy Company
Pro Forma Income Statement
Quarter Ended March 31, 2019
	January	February	March	Total
Sales Revenue
Cost of Goods Sold
Gross Profit
S & A Expenses
Operating Income
Income Tax Expense
Net Income
Which option is best? Explain your answer.