Problem 20-3A Manufacturing: Preparation and analysis of budgeted income stateme
ID: 2538814 • Letter: P
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
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
Explanation / Answer
MERLINE MANUFACTURING Budgeted Sales January February March Budgeted Sales units * 11000 11000 11000 Budgeted unit selling price 126 126 126 Budgeted Sales Value 1386000 1386000 1386000 Current Sales 1410000 unit seling pricce 141 Sales units 10000 Expected increase 10% Expected sales units * 11000 MERLINE MANUFACTURING Budgeted Income Statement January February March Budgeted Sales 1386000 1386000 1386000 Cost of goods sold 605000 605000 605000 Gross Profit 781000 781000 781000 Operatint Expenses: Sales Commissions (10% of sales) 138600 138600 138600 Advertising 244200 244200 244200 Store Rent 25100 25100 25100 Administrative Salaries 45500 45500 45500 Depreciation office equipment 55500 55500 55500 Other expenses 13100 13100 13100 Total expenses 522000 522000 522000 Net income 259000 259000 259000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.