Using sensitivity analysis Caputo Company prepared the following budgeted income statement for the first quarter of 2018: CAPUTO COMPANY Budgeted Income Statement For the Quarter Ended March 31, 2018 Total February March January (20% increase per month) 12,000 14,400 $36,400 Net Sales Revenue 10,000 Cost of Goods Sold (50% of sales) 5,000 6,000 7,200 18,200 Gross Profit 6,000 5,000 7,200 18,200 ($3,000 5% of sales) S&A Expenses 3,500 10,820 3,600 3,720 Operating Income 1,500 2,400 3,480 7,380 Income Tax Expense (30% of operating income) 450 2,214 720 1,044 $ 2,436 S 1,050 S 1,680 S 5,166 Net Income Caputo Company is considering two options. Option 1 is to increase advertising by $1,100 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 55% 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% Requirements 1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain $10,000. Round all calculations to the nearest dollar. 2. Which option should Caputo choose? Explain your reasoning. Option 1 Caputo Company Pro Forma Income Statement Quarter Ended March 31, 2018 Jauary Total March February Sales Revenue Cost of Goods Sold Gross Profit S & A Expenses Operating Income Income Tax Expense Net Income Option 2 Caputo Company Pro Forma Income Statement Quarter Ended March 31, 2018 February Total March Jaary Sales Revenue Cost of Goods Sold Gross Profit 5S & A Expenses Operating Income B Income Tax Expense 9Net Income