Easy Company is a manufacturer of video conferencing products. Revenue from the company comes from two sources namely from sales of equipment and maintenance service to customers. Regular units are manufactured to meet marketing projections, and specialized units are made after an order is received. Maintenance service contract for customers is an important area of customer satisfaction. With the recent downturn in the computer industry, the video conferencing equipment segment has suffered, leading to a decline in Easy financial performance. The following income statement shows results for 2020:

Easy management team is in the process of preparing the 2021 budget and is studying the following information: 

i. Selling prices of equipment are expected to increase by 10% as the economic recovery begins. Equipment sales in units are also expected to increase by 6%. There is no beginning or ending inventory of equipment. 

ii. The selling price of each service maintenance contract is expected to remain unchanged from 2021. However, there will be a 6% increase in maintenance contracts.

iii. The cost of each equipment unit sold is 75% of equipment sales expected to increase to 78% to pay for the necessary technology and quality improvements.

iv. Marketing costs are expected to increase by $250, but administration costs are expected to remain at 2020 levels.

v. Distribution costs vary in proportion to the number of units of equipment sold. It will be 2.5% of the equipment sales amount 

vi. Two maintenance technicians are to be hired at a total cost of $130, which covers wages and related travel costs. The objective is to improve customer service and shorten response time.

Prepare the budgeted income statement for the year ending December 31, 2021.

Transcribed Image Text:

Easy Company Income Statement for 2020 Revenues Equipment Maintenance contracts $6,000 1,800 7,800 Total revenues Cost of goods sold Gross margin Operating costs: Marketing costs Distribution costs 4,500 3,300 600 150 1,000 900 Customer maintenance costs Administrative costs Total operating costs Operating income 2,650 650 Easy Company Income Statement for 2020 Revenues Equipment Maintenance contracts $6,000 1,800 7,800 Total revenues Cost of goods sold Gross margin Operating costs: Marketing costs Distribution costs 4,500 3,300 600 150 1,000 900 Customer maintenance costs Administrative costs Total operating costs Operating income 2,650 650

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