90.2K

Verified Solution

Link Copied!

Merline Manufacturing makes its product for $70 per unit and sells it for $138 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	$	1,380,000
Cost of goods sold		700,000
Gross profit		680,000
Operating expenses
Sales commissions (10%)		138,000
Advertising		216,000
Store rent		24,800
Administrative salaries		44,000
DepreciationOffice equipment		54,000
Other expenses		12,800
Total expenses		489,600
Net income	$	190,400

Management expects Decembers 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 $123 per unit and advertising expenses are increased by 20% and remain at that level for all three months. The cost of its product will remain at $70 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 (dollars) Budgeted sales (in units)
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
Accounts payable Accounts receivable Accumulated depreciation Administrative salaries expense Advertising expense
Accounts payable Accounts receivable Accumulated depreciation Administrative salaries expense Advertising expense Bank loan payable
Gross profit Gross loss
Expenses
Sales commissions			0
Advertising
Store rent
Administrative salaries
DepreciationOffice equipment
Other expenses
Total expenses	0	0	0
Net income Net loss	$0	$0	$0

Answer & Explanation Solved by verified expert

See Answer