In: Accounting
Merline Manufacturing makes its product for $65 per unit and
sells it for $131 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 |
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Sales | $ | 1,310,000 | |
Cost of goods sold | 650,000 | ||
Gross profit | 660,000 | ||
Operating expenses | |||
Sales commissions (10%) | 131,000 | ||
Advertising | 202,000 | ||
Store rent | 24,100 | ||
Administrative salaries | 40,500 | ||
Depreciation—Office equipment | 50,500 | ||
Other expenses | 12,100 | ||
Total expenses | 460,200 | ||
Net income | $ | 199,800 | |
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% each month for the
next three months (beginning with January) if the item's selling
price is reduced to $116 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 $65 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.)
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