Avery Company prepared the following budgeted income statement for the first quarter of 2018: i Data Table Avery Company Budgeted Income Statement For the Quarter Ended March 31, 2018 January February March Total Net Sales Revenue (5% increase per month) $ 20,000 $ 21,000 $ 22,050| $ 63,050 Cost of Goods Sold (60% of sales) 12,000 12,600 13,230 37,830 Gross Profit 8,000 8,400 8,820 25,220 S and A Expenses ($3,000 + 10% of sales) 5,000 5,100 5,205 15,305 Operating Income 3,000 3,300 3,615 9.915 Income Tax Expense (20% of operating income) 600 660 723 1,983 2,400| $ 2,640 $ 2,892 $ 7,932 Net Income More Info Option 1 is to increase advertising by $1,500 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 65% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 20% per month rather than 5%. Avery Company is considering two options. i Requirements 1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain $20,000. Round all calculations to the nearest dollar. 2. Which option should Avery choose? Explain your reasoning. %24 %24
Avery Company prepared the following budgeted income statement for the first quarter of 2018: i Data Table Avery Company Budgeted Income Statement For the Quarter Ended March 31, 2018 January February March Total Net Sales Revenue (5% increase per month) $ 20,000 $ 21,000 $ 22,050| $ 63,050 Cost of Goods Sold (60% of sales) 12,000 12,600 13,230 37,830 Gross Profit 8,000 8,400 8,820 25,220 S and A Expenses ($3,000 + 10% of sales) 5,000 5,100 5,205 15,305 Operating Income 3,000 3,300 3,615 9.915 Income Tax Expense (20% of operating income) 600 660 723 1,983 2,400| $ 2,640 $ 2,892 $ 7,932 Net Income More Info Option 1 is to increase advertising by $1,500 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 65% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 20% per month rather than 5%. Avery Company is considering two options. i Requirements 1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain $20,000. Round all calculations to the nearest dollar. 2. Which option should Avery choose? Explain your reasoning. %24 %24
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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please explain as thoroughly as possible
Transcribed Image Text:Avery Company prepared the following budgeted income statement for the first quarter of
2018:
i
Data Table
Avery Company
Budgeted Income Statement
For the Quarter Ended March 31, 2018
January
February
March
Total
Net Sales Revenue (5% increase per month)
$ 20,000 $
21,000 $
22,050| $
63,050
Cost of Goods Sold (60% of sales)
12,000
12,600
13,230
37,830
Gross Profit
8,000
8,400
8,820
25,220
S and A Expenses ($3,000 + 10% of sales)
5,000
5,100
5,205
15,305
Operating Income
3,000
3,300
3,615
9.915
Income Tax Expense (20% of operating income)
600
660
723
1,983
2,400| $
2,640 $
2,892 $
7,932
Net Income
More Info
Option 1 is to increase advertising by $1,500 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 65% but will provide a better product at the
same sales price. The marketing manager projects either option will result in sales
increases of 20% per month rather than 5%.
Avery Company is considering two options.
i Requirements
1. Prepare budgeted income statements for both options, assuming both options
begin in January and January sales remain $20,000. Round all calculations to
the nearest dollar.
2. Which option should Avery choose? Explain your reasoning.
%24
%24
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