Videocom Company is a manufacturer of videoconferencing products. Maintaining the videoconferencing equipment is an important area of

Question:

Videocom Company is a manufacturer of videoconferencing products. Maintaining the videoconferencing equipment is an important area of customer satisfaction. A recent downturn in the computer industry has caused the videoconferencing equipment segment to suffer, leading to a decline in Videocom€™s financial performance. The following income statement shows results for 2012:

Videocom€™s management team is preparing the 2013 budget and is studying the following information:
1. Selling prices of equipment are expected to increase by 15% as the economic recovery begins. The selling price of each maintenance contract is expected to remain unchanged from 2012.
2. Equipment sales in units are expected to increase by 8%, with a corresponding 8% growth in units of maintenance contracts.
3. Cost of each unit sold is expected to increase by 4% to pay for the necessary technology and quality improvements.
4. Marketing costs are expected to increase by $ 290,000, but administration costs are expected to remain at 2012 levels.
5. Distribution costs vary in proportion to the number of units of equipment sold.
6. Two maintenance technicians are to be hired at a total cost of $ 190,000, which covers wages and related travel costs. The objective is to improve customer service and shorten response time.
7. There is no beginning or ending inventory of equipment.

Required
1. Prepare a budgeted income statement for the year ending December 31, 2013.
2. How well does the budget align with Videocom€™s strategy?
3. What questions might the CEO ask the management team when reviewing the budget?
4. How does preparing the budget help Videocom€™s management team better manage thecompany?

Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =...