Prepare budgeted income statements for each of the months of January, February, and March that show results from implementing the proposed plan. Merline Manufacturing makes its product for $65 per unit and sells it for $137 per unit. The sales staff receives a commission of 10% of sales. Its December income statement follows. MERLINE MANUFACTURING Income Statement For Month Ended December 31 Sales $ 1,370,000 Cost of goods sold 650,000 Gross profit 720,000 Selling, general, and administrative expenses Sales commissions (10%) 137,000 Advertising 214,000 Office rent 24,700 Administrative salaries 43,500 Depreciation—Office equipment 53,500 Office Insurance 12,700 485,400 Net income $ 234,600 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 $122 per unit and advertising is increased to $246,100 per month, sales units will be 11,000 for January, 12,100 for February, and 13,310 for March. The cost of its product will remain at $65 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Prepare
Merline Manufacturing makes its product for $65 per unit and sells it for $137 per unit. The sales staff receives a commission of 10% of sales. Its December income statement follows.
| MERLINE MANUFACTURING | ||
| Income Statement | ||
| For Month Ended December 31 | ||
| Sales | $ 1,370,000 | |
|---|---|---|
| Cost of goods sold | 650,000 | |
| Gross profit | 720,000 | |
| Selling, general, and administrative expenses | ||
| Sales commissions (10%) | 137,000 | |
| Advertising | 214,000 | |
| Office rent | 24,700 | |
| Administrative salaries | 43,500 | |
| 53,500 | ||
| Office Insurance | 12,700 | 485,400 |
| Net income | $ 234,600 |
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 $122 per unit and advertising is increased to $246,100 per month, sales units will be 11,000 for January, 12,100 for February, and 13,310 for March. The cost of its product will remain at $65 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.
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