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 42 desk units (sales price of $1,270) and 22 chairs (sales price of $520).

Sales	$194,340
COGS	145,440
Gross profit	48,900
Expenses
Sales commissions (10%)	19,434
Advertising expenses	9,600
Other fixed expenses	18,600
Total expenses	47,634
Net income	1,266

* Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (126 desks × $1,270) + (66 chairs × $520) = $160,020 + $34,320 = $194,340
‡ Cost of goods sold: (126 desks × $770) + (66 chairs × $270) + $30,600 = $145,440

Santana Rey believes that sales will increase each month for the next three months (April, 50 desks, 34 chairs; May, 54 desks, 37 chairs; June, 58 desks, 40 chairs) if selling prices are reduced to $1,170 for desks and $470 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 $770 for desks and $270 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,200 and other fixed expenses will remain at $6,200 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.

                                                                BUDGETED income statements

                                                                 APRIL                                       MAY                                      JUNE

Sales
COGS
Gross profit
Expenses
Sales commissions
Advertising
Other fixed expenses
Total expenses
Net income (loss)

                                                         

Answer 1

	April	May	June
Sales	$                74,480	$             80,570	$                   86,660
COGS	$                57,880	$             61,770	$                   65,660
Gross Profit	$                16,600	$             18,800	$                   21,000
Expenses
Sales Commission	$                  7,448	$               8,057	$                     8,666
Advertising	$                  3,520	$               3,520	$                     3,520
Other Fixed Expenses	$                  6,200	$               6,200	$                     6,200
Total Expenses	$                17,168	$             17,777	$                   18,386
Net Income (Loss)	$                    -568	$               1,023	$                     2,614