Caputo Company prepared the following budgeted income statement for the first quarter of 2018:
CAPUTO COMPANY
Budgeted Income Statement
For the Quarter Ended March 31, 2018

Caputo Company is considering two options. Option 1 is to increase advertising by $1,100 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 55% 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 both options begin in January and January sales remain $10,000. Round all calculations to the nearest dollar.
2. Which option should Caputo choose? Explain your reasoning?

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February March Total January Net Sales Revenue (20% increase per month) Cost of Goods Sold (50% of sales) Gross Profit S&A Expenses Operating Income Income Tax Expense (30% of operating income) Net Income $ 14,400 7,200 7,200 $ 36,400 18,200 18,200 $ 10,000 5,000 5,000 3,500 1,500 $ 12,000 6,000 6,000 3,600 2,400 ($3,000 + 5% of sales) 3,720 3,480 1,044 10,820 7,380 2,214 $ 5,166 450 720 $ 1,050 $ 1,680 $ 2,436