Robert Merchandising Firm is developing its budgets for Year 2. The Year 1 income statement is as follows:

Sales (200,000 units) $1,000,000 Less Cost of goods sold 650,000 Gross profit $ 350,000 Operating expenses (includes $40,000 of depreciation) 240,000 Net income $ 110,000

Selling prices will increase by 10 percent, and sales volume in units will decrease by 6 percent. The cost of goods sold as a percent of sales will increase to 62 percent. Other than depreciation, all operating costs are variable.

Prepare a budgeted functional income statement for Year 2.