Question

Problem 20-3A Manufacturing: Preparation and analysis of budgeted income statements LO P3

Merline Manufacturing makes its product for $55 per unit and sells it for $141 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, 2017
Sales	$	1,410,000
Cost of goods sold		550,000
Gross profit		860,000
Operating expenses
Sales commissions (10%)		141,000
Advertising		222,000
Store rent		25,100
Administrative salaries		45,500
Depreciation—Office equipment		55,500
Other expenses		13,100
Total expenses		502,200
Net income	$	357,800

Management expects December’s results to be repeated in January, February, and March of 2018 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales will increase at a rate of 10% eachmonth for the next three months (beginning with January) if the item's selling price is reduced to $126 per unit and advertising expenses are increased by 10% and remain at that level for all three months. The cost of its product will remain at $55 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.

Required:
Prepare budgeted income statements for each of the months of January, February, and March that show the expected results from implementing the proposed changes. (Enter your final answers in whole dollars.)

MERLINE MANUFACTURING Budgeted Sales For Months of January, February, and March, 2018 January February March Budgeted sales (in units) Budgeted selling price per unit Budgeted sales (in dollars) MERLINE MANUFACTURING Budgeted Income Statement For Months of January, February, and March, 2018 January February March Sales Cost of goods sold Gross profit Expenses Sales commissions Advertising Store rent Administrative salaries Depreciation—Office equipment Other expenses Total expenses 0 0 0 Net income $0 $0 $0

Answer 1