Eles. Its December income statement follows. Sales Cost of goods sold Gross profit MERLINE MANUFACTURING Income Statement For Month Ended December 31 Selling, general, and administrative expenses. Sales commissions (10 %) Advertising office rent Administrative salaries Depreciation-office equipment Office Insurance Net income $225,000 250,000 30,000 45,000 50,000 10,000 $ 2,250,000 1,125,000 1,125,000 610,000 $ 515,000 Required 1 Required 2 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 $125 per unit and advertising is increased to $287,500 per month, sales units will be 16,500 for January, 18,150 for February, and 19,965 for March. The cost of its product will remain at $75 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? Complete this question by entering your answers in the tabs below. 01 10% OT Prepare budgeted income statements for each of the months of January, February, and March

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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**Merline Manufacturing Budget Planning**

Merline Manufacturing produces a product with a unit cost of $75, selling it for $150. Sales staff earn a 10% commission. Below is the company's December income statement:

**Income Statement for December:**

- **Sales:** $2,250,000
- **Cost of Goods Sold:** $1,125,000
- **Gross Profit:** $1,125,000

**Selling, General, and Administrative Expenses:**

- Sales Commissions: $225,000
- Advertising: $250,000
- Office Rent: $30,000
- Administrative Salaries: $45,000
- Depreciation-Office Equipment: $50,000
- Office Insurance: $10,000

**Total Expenses:** $610,000

- **Net Income:** $515,000

**Management's Proposal:**

Expectations are for December's results to repeat in January through March without strategic changes. However, management proposes reducing the unit selling price to $125 and increasing advertising to $287,500 monthly. Anticipated sales units are: 

- January: 16,500
- February: 18,150
- March: 19,965

The cost per unit remains $75. Staff commissions and other expenses are unchanged.

**Tasks:**

1. Prepare budgeted income statements for January, February, and March under the proposed plan.
2. Determine if March's income is projected to exceed December's.

**Budgeted Sales Information:**

|                   | January | February | March   |
|-------------------|---------|----------|---------|
| Sales (units)     | 16,500  | 18,150   | 19,965  |
| Selling Price ($) | 125     | 125      | 125     |
| Sales ($)         | 2,062,500 | 2,268,750 | 2,495,625 |

This planning involves calculating detailed income statements for proposed strategy adjustments and evaluating the financial impact over the specified months.
Transcribed Image Text:**Merline Manufacturing Budget Planning** Merline Manufacturing produces a product with a unit cost of $75, selling it for $150. Sales staff earn a 10% commission. Below is the company's December income statement: **Income Statement for December:** - **Sales:** $2,250,000 - **Cost of Goods Sold:** $1,125,000 - **Gross Profit:** $1,125,000 **Selling, General, and Administrative Expenses:** - Sales Commissions: $225,000 - Advertising: $250,000 - Office Rent: $30,000 - Administrative Salaries: $45,000 - Depreciation-Office Equipment: $50,000 - Office Insurance: $10,000 **Total Expenses:** $610,000 - **Net Income:** $515,000 **Management's Proposal:** Expectations are for December's results to repeat in January through March without strategic changes. However, management proposes reducing the unit selling price to $125 and increasing advertising to $287,500 monthly. Anticipated sales units are: - January: 16,500 - February: 18,150 - March: 19,965 The cost per unit remains $75. Staff commissions and other expenses are unchanged. **Tasks:** 1. Prepare budgeted income statements for January, February, and March under the proposed plan. 2. Determine if March's income is projected to exceed December's. **Budgeted Sales Information:** | | January | February | March | |-------------------|---------|----------|---------| | Sales (units) | 16,500 | 18,150 | 19,965 | | Selling Price ($) | 125 | 125 | 125 | | Sales ($) | 2,062,500 | 2,268,750 | 2,495,625 | This planning involves calculating detailed income statements for proposed strategy adjustments and evaluating the financial impact over the specified months.
**Budgeted Income Statements for Merline Manufacturing**

This document provides the budgeted income statements for Merline Manufacturing for the months of January, February, and March. The statements reflect the results from implementing a proposed business plan.

### Budgeted Sales

- **January**
  - Budgeted Sales (in units): 16,500
  - Budgeted Selling Price per Unit: $125
  - Budgeted Sales (in dollars): $2,062,500

- **February**
  - Budgeted Sales (in units): 18,150
  - Budgeted Selling Price per Unit: $125
  - Budgeted Sales (in dollars): $2,268,750

- **March**
  - Budgeted Sales (in units): 19,965
  - Budgeted Selling Price per Unit: $125
  - Budgeted Sales (in dollars): $2,495,625

### Budgeted Income Statement

#### Sales
- **January:** $2,062,500
- **February:** $2,268,750
- **March:** $2,495,625

#### Cost of Goods Sold
- **January:** $1,237,500
- **February:** $1,361,250
- **March:** $1,497,375

#### Gross Profit
- **January:** $825,000
- **February:** $907,500
- **March:** $998,250

#### Selling, General, and Administrative Expenses
- **Sales Commissions:**
  - January: $206,250
  - February: $226,875
  - March: $249,563
- **Advertising (per month):** $287,500
- **Office Rent (per month):** $60,000
- **Administrative Salaries (per month):** $45,000
- **Depreciation—Office Equipment (per month):** $50,000
- **Office Insurance (per month):** $40,000

#### Total Expenses
- **January:** $588,750
- **February:** $609,375
- **March:** $632,063

#### Net Income
- **January:** $236,250
- **February:** $298,125
- **March:** $366,187

This statement shows the growth in sales and net income over the three-month period, reflecting the effectiveness of the
Transcribed Image Text:**Budgeted Income Statements for Merline Manufacturing** This document provides the budgeted income statements for Merline Manufacturing for the months of January, February, and March. The statements reflect the results from implementing a proposed business plan. ### Budgeted Sales - **January** - Budgeted Sales (in units): 16,500 - Budgeted Selling Price per Unit: $125 - Budgeted Sales (in dollars): $2,062,500 - **February** - Budgeted Sales (in units): 18,150 - Budgeted Selling Price per Unit: $125 - Budgeted Sales (in dollars): $2,268,750 - **March** - Budgeted Sales (in units): 19,965 - Budgeted Selling Price per Unit: $125 - Budgeted Sales (in dollars): $2,495,625 ### Budgeted Income Statement #### Sales - **January:** $2,062,500 - **February:** $2,268,750 - **March:** $2,495,625 #### Cost of Goods Sold - **January:** $1,237,500 - **February:** $1,361,250 - **March:** $1,497,375 #### Gross Profit - **January:** $825,000 - **February:** $907,500 - **March:** $998,250 #### Selling, General, and Administrative Expenses - **Sales Commissions:** - January: $206,250 - February: $226,875 - March: $249,563 - **Advertising (per month):** $287,500 - **Office Rent (per month):** $60,000 - **Administrative Salaries (per month):** $45,000 - **Depreciation—Office Equipment (per month):** $50,000 - **Office Insurance (per month):** $40,000 #### Total Expenses - **January:** $588,750 - **February:** $609,375 - **March:** $632,063 #### Net Income - **January:** $236,250 - **February:** $298,125 - **March:** $366,187 This statement shows the growth in sales and net income over the three-month period, reflecting the effectiveness of the
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