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Kling Company prepared the following budgeted income statement for the first quarter of 2016: (The first value is for January, the second value is February, the third value is March, the fourth value is the total of the 3 months) Example Sales Revenue for January = 25,000 SR for February = 30,000, SR for March = 36,000 Total SR = 91,000 (and so on and so forth)

Sales Revenue (20% increase per month) $25,000 $30,000 $36,000 $91,000

Cost of Goods Sold (20% of sales) 5,000 6,000 7,200 18,200

Gross Profit 20,000 24,000 28,800 72,800 S and A Expenses ($3,000 + 12% of sales) 6,000 6,600 7,320 19,920

Operating Income 14,000 17,400 21,480 52,880

Income Tax Expense (20% of operating income) 2,800 3,480 4,296 10,576

Net Income $11,200 $13,920 $17,184 $42,304 Kling is considering two options. Option 1 is to increase advertising by $1,400 per month. Option 2 is to usebetter-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 25% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 25% per month rather than 20%

	Requirements: 1: Prepare budgeted income statements for both options assuming January sales remain$25,000.
2.

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