Question

Data Table X Shaner Company Budgeted Income Statement For the Quarter Ended March 31, 2018 fanuary February March Total Net Sales Revenue (20% increase per month) 8,000 $ 9,600 $ 11,520 $ 29,120 Cost of Goods Sold (40% of sales) 3,200 3,840 4,608 11,648 Gross Profit 4,800 5,760 6,912 17,472 S and A Expenses ($2,000 10% of sales) 2,800 2,960 3,152 8,912 Operating Income 2,000 2,800 3,760 8,560 Income Tax Expense (30% of operating income) 1,128 2,568 600 840 $ 1,400S 1,960 $ 2,632 S 5,992 Net Income Print Done

Answer 1

Requirement 1

Increase in advertising

OPTION 1
	January	February	March	Total
Sales	$         8,000	$      10,400	$      13,520	$      31,920
COGS	$         3,200	$         4,160	$         5,408	$      12,768
Gross profit	$         4,800	$         6,240	$         8,112	$      19,152
S and A expenses	$         3,700	$         3,940	$         4,252	$      11,892
Operating Income	$         1,100	$         2,300	$         3,860	$         7,260
Income tax expense	$            330	$            690	$         1,158	$         2,178
Net income	$            770	$         1,610	$         2,702	$         5,082

Incresae in COGS

OPTION 2
	January	February	March	Total
Sales	$         8,000	$      10,400	$      13,520	$      31,920
COGS	$         3,600	$         4,680	$         6,084	$      14,364
Gross profit	$         4,400	$         5,720	$         7,436	$      17,556
S and A expenses	$         2,800	$         3,040	$         3,352	$         9,192
Operating Income	$         1,600	$         2,680	$         4,084	$         8,364
Income tax expense	$            480	$            804	$         1,225	$         2,509
Net income	$         1,120	$         1,876	$         2,859	$         5,855

Requirement 2

The company should choose option 2 as the profits are higher.

In case of any doubt, please comment.