Adria Lopez expects second quarter 2014 sales of her new line of computer furniture Answer
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 42 desk units (sales price of $1,270) and 22 chairs (sales price of $520).
Segment Income Statement*
For Quarter Ended March 31, 2014
Sales† $ 194,340
Cost of goods sold‡ 145,440
Gross profit 48,900
Sales commissions (10%) 19,434
Advertising expenses 9,600
Other fixed expenses 18,600
Total expenses 47,634
Net income $ 1,266
* Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (126 desks × $1,270) + (66 chairs × $520) = $160,020 + $34,320 = $194,340
‡ Cost of goods sold: (126 desks × $770) + (66 chairs × $270) + $30,600 = $145,440
Adria Lopez believes that sales will increase each month for the next three months (April, 50 desks, 34 chairs; May, 54 desks, 37 chairs; June, 58 desks, 40 chairs) if selling prices are reduced to $1,170 for desks and $470 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 $770 for desks and $270 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,200 and other fixed expenses will remain at $6,200 per month.
Prepare budgeted income statements for each of the months of April, May, and June that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month.
Recommend whether Adria Lopez should implement the proposed changes.
____ Should not implement the proposed changes
____ Should implement the proposed changes
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Success Systems’ second quarter 2014 fixed budget performance report for its computer furniture operations follows. The $170,240 budgeted expenses include $113,760 in variable expenses for desks and $18,480 in variable expenses for chairs, as well as $38,000 fixed expenses. The actual expenses include $39,600 fixed expenses. List fixed and variable expenses separately.
Fixed Budget Actual Results Variances
Desk sales (in units) 144 150
Chair sales (in units) 66 74
Desk sales (in dollars) $ 181,440 $ 187,500 $ 6,060 F
Chair sales (in dollars) $ 36,300 $ 41,810 $ 5,510 F
Total expenses $ 170,240 $ 179,230 $ 8,990 U
Income from operations $ 47,500 $ 50,080 $ 2,580 F
Prepare a flexible budget performance report that shows any variances between budgeted results and actual results.
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