HOG Company makes its product for $60 per unit and sells it for $130 per unit. The sales staff receives a commission of 10% of sales. Its June income statement follows.

Management expects June’s results to be repeated in July, August, and September without any changes in strategy. Management, however, has another plan. It believes that if the unit selling price is reduced to $115 per unit and advertising is increased to $250,000 per month, sales units will be 11,000 for July, 12,100 for August, and 13,310 for September. The cost of its product will remain at $60 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.

Required

1. Prepare budgeted income statements for each of the months of July, August, and September that show results from implementing the proposed plan. Use a three-column format, with one column for each month. Ignore income taxes.

Analysis Component

2. For the proposed plan, is income in September budgeted to be higher than income in June?

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HOG Company Income Statement For Month Ended June 30 Sales .... $1,300,000 Cost of goods sold . 600,000 Gross profit..... 700,000 Selling, general, and administrative expenses Sales commissions (10%) . $130,000 Advertising .. 200,000 Office rent 24,000 Administrative salaries ... 40,000 50,000 Depreciation-Office equipment Office insurance.. Net income... 12,000 456,000 $ 244,000