I need quick help in managerial accounting. Merline Manufacturing makes its prod
ID: 2474492 • Letter: I
Question
I need quick help in managerial accounting.
Merline Manufacturing makes its product for $70 per unit and sells it for $144 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, 2015 Sales Cost of goods sold $ 1,440,000 700,000 Gross profit Operating expenses 740,000 Sales commissions (10%) Advertising Store rent Administrative salaries DepreciationOffice equipment Other expenses 144,000 228,000 25,400 47,000 57,000 13,400 Total expenses 514,800 Net income $ 225,200 Management expects December's results to be repeated in January, February, and March of 2016 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales will increase at a rate of 10% each month for the next three months (beginning with January) if the item's selling price is reduced to $129 per unit and advertising expenses are increased by 25% and remain at that level for all three months. The cost of its product will remain at $70 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the sameExplanation / Answer
To calculate budgeted sales let us calculate the total units of sale in December , given in the problem total sale value os $1,440,000 and selling price per unit is $144 , so the number of units sold is
Units sold = 1440000 /144 = 10,000 units
The sales is increasing 10% every month so the total units sold is
January = 10,000 *1.1 =11,000 units
February= 11000*1,1=12,100
March = 12,100 *1.1= 13,310
The selling price is $129
The calculation is given below
Merline Manufacturing Budgeted sales For the months of January , february , and March . 2016 January February March units sold 11000 12100 13310 selling price per unit 129 129 129 Budgeted sales (in dollars) 1419000 1560900 1716990 Cost of goods sold 770000 847000 931700 Gross profit 649000 713900 785290 Merline Manufacturing Budgeted income staement For the months of January , february , and March . 2016 January February March Operating expenses Sales commisions 141900 156090 171699 Advertising 285625 285625 285625 store rent 25400 25400 25400 administrative salaries 47000 47000 47000 depreciation -office equipment 57000 57000 57000 other expenses 13400 13400 13400 Total expenses 570325 584515 600124 Net income 78675 129385 185166