Question

Santana Rey expects second quarter 2018 sales of her new line of computer furniture to be the same as the first quarter's sales (reported below) without any changes in strategy. Monthly sales averaged 43 desk units (sales price of $1.290) and 24 chairs (sales price of $540) BUSINESS SOLUTIONS--Computer Furniture Segment Segment Income Statement For Quarter Ended March 31, 2018 Sales $ 205,290 Cost of goods sold 133,190 Gross profit 72,100 Expenses Sales commissions (10%) 20,529 Advertising expenses 12.200 Other fixed expenses 19.20 Total expenses 49,929 Niet income $ 22.121 * Reflects revenue and expense activity only related to the computer furniture segment Revenue (129 desks $1290) - (12 chairs 5540) = $166,410 - $38,880 - $205,290 # Cost of goods sold: (129 desks $790) - (72 chairs * $290) - $31200 = $133,190 Santana Rey believes that sales will increase each month for the next three months (April, 51 desks. 36 chairs: May, 55 desks, 39 chairs, June, 59 desks. 42 chairs) if selling prices are reduced to $1190 for desks and $490 for chairs, and advertising expenses are increased by 10% and remain at that level for all three months. The products' variable cost will remain at $790 for desks and $290 for chairs. The sales staff will continue to earn a 10% commission, the foxed manufacturing costs per month will remain at $10.400 and other fixed expenses will remain at 56,400 per month Required: 1. Prepare budgeted income statements for the computer furniture segment for each of the months of April May, and June that show the expected results from implementing the proposed changes. Use a three-column format with one column for each month

Answer 1

BUSINESS SOLUTIONS - Computer Furniture Segment

Budgeted Income Statement

For months of April, May and June

	April	May	June
Sales	78,330	84,560	90,790
Cost of goods sold	50,730	54,760	58,790
Gross profit	27,600	29,800	32,000
Expenses:
Sales commission @10%	7,833	8,456	9,079
Advertising	3,740	3,740	3,740
Other fixed expenses	6,400	6,400	6,400
Total expenses	17,973	18,596	19,219
Net income (loss)	$9,627	$11,204	$12,781

Working notes:-

Sales -

April = (51 x 1,190) + (36 x 490) = 78,330

May = (55 x 1,190) + (39 x 490) = 84,560

June = (59 x 1,190) + (42 x 490) = 90,790

Cost of goods sold -

April = (51 x 790) + (36 x 290) = 50,730

May = (55 x 790) + (39 x 290) = 54,760

June = (59 x 790) + (42 x 290) = 58,790