Adria Lopez expects second quarter 2014 sales of her new line of computer furniture to be the

SP 22 Adria Lopez expects second quarter 2014 sales of her new line of computer furniture to be the same as the first quarter's sales (reported below) without any changes in strategy. Monthly sales averaged 40 desk units (sales price of $1,250) and 20 chairs (sales price of $500).

SUCCESS SYSTEMS

Segment Income Statement

For Quarter Ended March 31, 2014

Sales* $180,000

Cost of goods sold** 115,000

Gross profit 65,000

Expenses

 Sales commissions(10%) 18,000

Advertising expenses 9,000

Other fixed expenses 18,000

Total expenses 45,000

Net income $20,000

*Reflects revenue and expense activity only related to the computer furniture segment.
** Revenue: (120 desks X $1,250 + (60 chairs X $500) = $150,000 + $30,000 = $180,000
:Cost of goods sold: (120 desks X $750) + (60 chairs X $250) + $10,000 = $115,000

Adria Lopez believes that sales will increase each month for the next three months (April, 48 desks, 32 chairs; May, 52 desks, 35 chairs; June, 56 desks, 38 chairs) if selling prices are reduced to $1,150 for desks and $450 for chairs, and advertising expenses are increased by 10% and remain at that level for all three months. The products' variable cost will remain at $750 for desks and $250 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,000 and other fixed expenses will remain at $6,000 per month.

Required

Prepare budgeted income statements for each of the months of April, May, and June that show the expected results from implementing the proposed changes.

TUTORIAL PREVIEW

Part 1

SUCCESS SYSTEMS
Budgeted Income Statements
For Months of April, May, and June
	April	May	June
Sales*	$69,600	$75,550	$81,500
Cost of goods sold*	54,000	57,750	61,500
Gross profit	15,600	17,800	20,000

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