Question

Merline Manufacturing makes its product for $60 per unit and sells it for $142 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows. MERLINE MANUFACTURING Income Statement For Month Ended December 31, 2017 Sales $1,420,000 Cost of goods sold 600,000 Gross profit 820,000 Operating expenses Sales commissions (10%) 142,000 Advertising 224,000 Store rent 25, 200 Administrative salaries 46,000 Depreciation-office equipment 56,000 Other expenses 13,200 Total expenses 506,400 Net income $ 313,600 Management expects December's results to be repeated in January, February, and March of 2018 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales will increase at a rate of 10% each month for the next three months (beginning with January) if the item's selling price is reduced to $127 per unit and advertising expenses are increased by 15% and remain at that level for all three months. The cost of its product will remain at $60 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same. Required: Prepare budgeted income statements for each of the months of January, February, and March that show the expected

Answer 1

MERLINE MANUFACTURING Budgeted Sales For Months of January, February, and March, 2018 January February Budgeted sales in units) 11,000 12.100 Budgeted selling price per unit $127) $127 Budgeted sales in dollars) $1.397,000 $1,536,700 March 13,310 $127 $1.690.370 March 1,690,370 798,600 891,7701 MERLINE MANUFACTURING Budgeted Income Statement For Months of January, February, and March, 2018 January February Sales 1.397.000 1.536.700 Cost of goods sold 660,000 726,000 Gross profit 737.000 810.700 Expenses: Sales commissions 139,700 153,6701 Advertising 246,400 246,400 Store rent 25.200 25.2001 Administrative salaries 46.000 46,000 Depreciation Office equipment 56.000 56,000 Other expenses 13,200 13,200 Total expenses 526,500 540.470 Net income 210,500 270.230 169,037 246,400 25.2001 46.000 56.000 13.2001 555,837 335,933

Working note:

MERLINE MANUFACTURING Budgeted Sales For Months of January, February, and March, 2018 January February Budgeted sales in units) =10000*110% =C6*110% Budgeted selling price per unit 127 Budgeted sales (in dollars) =C6*C7 =D6*D7 March =D6*110% 127 127 =E6*E7 MERLINE MANUFACTURING Budgeted Income Statement For Months of January, February, and March, 2018 January February March Sales =C8 =DS =E8 Cost of goods sold =C6*60 =D6*60 =E6*60 Gross profit =C14-C15 =D14-D15 1=E14-E15 Expenses: Sales commissions =C8*10% I=D8 10% =F8*100 Advertising =224000*110% =224000*110% =224000*110% Store rent 25200 25200 25200 Administrative salaries 46000 46000 46000 Depreciation Office equipment 56000 56000 56000 Other expenses 13200 13200 13200 Total expenses =SUM(C18:C23) =SUMD18:D23) I=SUM(E18:E23) Net income =C16-C24 =D16-D24 =E16-E24