Question

Given:

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 45 desk units (sales price of $1,330) and 28 chairs (sales price of $580)

Sales†	$	228,270
Cost of goods sold‡		150,570
Gross profit		77,700
Expenses
Sales commissions (10%)		22,827
Advertising expenses		11,400
Other fixed expenses		20,400
Total expenses		54,627
Net income	$	23,073

* Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (135 desks × $1,330) + (84 chairs × $580) = $179,550 + $48,720 = $228,270
‡ Cost of goods sold: (135 desks × $830) + (84 chairs × $330) + $32,400 = $150,570

Santana Rey believes that sales will increase each month for the next three months (April, 53 desks, 40 chairs; May, 57 desks, 43 chairs; June, 61 desks, 46 chairs) if selling prices are reduced to $1,240 for desks and $530 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 $830 for desks and $330 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,800 and other fixed expenses will remain at $6,800 per month.

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. (Can be done in excel)

Answer 1

Santana Rey
Budgeted Income Statement
Computer Furniture Segment
	April	May	June
Sales	86920	93470	100020
Cost of goods sold	67990	72300	76610
Gross profit	18930	21170	23410
Expenses
Sales commissions	8692	9347	10002
Advertising expenses	4180	4180	4180
Other fixed expenses	6800	6800	6800
Total expenses	19672	20327	20982
Net income (loss)	-742	843	2428

Workings:

	April	May	June
Sales units (Desks)	53	57	61
x Selling price	1240	1240	1240
Total desk sales $	65720	70680	75640
Sales units (Chairs)	40	43	46
x Selling price	530	530	530
Total chair sales $	21200	22790	24380
Total sales $	86920	93470	100020
	April	May	June
Sales units (Desks)	53	57	61
x Variable cost per unit	830	830	830
Total variable cost (Desks)	43990	47310	50630
Sales units (Chairs)	40	43	46
x Variable cost per unit	330	330	330
Total variable cost (Chairs)	13200	14190	15180
Total variable manufacturing cost $	57190	61500	65810
Fixed manufacturing costs $	10800	10800	10800
Total cost of goods sold $	67990	72300	76610