Question

Merline Manufacturing makes its product for $75 per unit and sells it for $150 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, 2019 Sales $2,250,000 Cost of goods sold 1,125,000 Gross profit 1,125,000 Operating expenses Sales commissions (10%) 225,000 Advertising 250,000 Store rent 30,000 Administrative salaries 45,000 Depreciation-office equipment 50,000 Other expenses 10,000 Total expenses 610,000 Net income $ 515,000 Management expects December's results to be repeated in January, February, and March of 2020 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 $125 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 $75 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same. Ramired:

Answer 1

MARLINE MANUFACTURING Budgeted sales for the months of January, February and March 2020 Particulars January February Budgeted sales units 16,500 18,150 Budgeted selling price per unit 125 Budgeted sales in dollars) 20,62,500 22,68,750 March 19,965 125 125 24,95,625 MARLINE MANUFACTURING Budgeted income statement for the months of January, February and March 2020 Particulars January February March 24,95,625 Sales Less: Cost of goods sold Gross Profit 20,62,500 12,37,500 22,68,750 13,61,250 14,97,375 8,25,000 9,07,500 9,98,250 2,26,875 2,87,500 30,000 2,49,563 2,87,500 2,06,250 2,87,500 30,000 45,000 50,000 Less: Expenses Sales commissions @10% of sales Advertising Store rent Administrative salaries Depreciation - Office equipment Other expenses Total Expenses Net Income 30,000 45,000 45,000 50,000 50,000 10,000 10,000 10,000 6,49,375 6,72,063 6,28,750 1,96,250 2,58,125 3 ,26,188