Merline Manufacturing makes its product for $60 per unit and sells it for $133 per unit....

     

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Merline Manufacturing makes its product for $60 per unit and sells it for $133 per unit. The sales staff receives a commission of 10% of sales. Its December income statement follows. MERLINE MANUFACTURING Income Statement Sales Cost of goods sold Gross profit For Month Ended December 31 $ 1,330,000 600,000 730,000 Selling, general, and administrative expenses Sales commissions (10%) Advertising Office rent Administrative salaries Depreciation-Office equipment Office Insurance Net income $ 133,000 206,000 24,300 41,500 51,500 12,300 468,600 $ 261,400 Management expects December's results to be repeated in January, February, and March without any changes in strategy. Management, however, has an alternative plan. It believes that if the unit selling price is reduced to $118 per unit and advertising is increased to $247,200 per month, sales units will be 11,000 for January, 12,100 for February, and 13,310 for March. 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 January, February, and March that show results from implementing the proposed plan. 2. For the proposed plan, is income in March budgeted to be higher than income in December? Merline Manufacturing makes its product for $60 per unit and sells it for $133 per unit. The sales staff receives a commission of 10% of sales. Its December income statement follows. MERLINE MANUFACTURING Income Statement Sales Cost of goods sold Gross profit For Month Ended December 31 $ 1,330,000 600,000 730,000 Selling, general, and administrative expenses Sales commissions (10%) Advertising Office rent Administrative salaries Depreciation-Office equipment Office Insurance Net income $ 133,000 206,000 24,300 41,500 51,500 12,300 468,600 $ 261,400 Management expects December's results to be repeated in January, February, and March without any changes in strategy. Management, however, has an alternative plan. It believes that if the unit selling price is reduced to $118 per unit and advertising is increased to $247,200 per month, sales units will be 11,000 for January, 12,100 for February, and 13,310 for March. 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 January, February, and March that show results from implementing the proposed plan. 2. For the proposed plan, is income in March budgeted to be higher than income in December?

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