Items 1 and 2 are based on the following information:
The operating results in summarized form for a retail computer store for 2003 are
|
Revenue: |
|||
|
Hardware sales |
$4,800,000 |
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|
Software sales |
2,000,000 |
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|
Maintenance contracts |
1,200,00 |
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|
Total revenue |
$8,000,000 |
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|
Costs and expenses |
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|
Cost of hardware sales |
$3,360,000 |
||
|
Cost of software sales |
1,200,000 |
||
|
Marketing expenses |
600,000 |
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|
Customer maintenance costs |
640,000 |
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|
Administrative expenses |
1,120,000 |
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|
Total costs and expenses |
$6,920,000 |
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|
Operating income |
$1,080,000 |
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The computer store is in the process of formulating its operating budget for 2004 and has made the following assumptions:
- The selling prices of hardware are expected to increase 10% but there will be no selling price increases for software and maintenance contracts.
- Hardware unit sales are expected to increase 5% with a corresponding 5% growth in the number of maintenance contracts; growth in unit software sales is estimated at 8%.
- The cost of hardware and software is expected to increase 4%.
- Marketing expenses will be increased 5% in the coming year.
- Three technicians will be added to the customer maintenance operations in the coming year, increasing the customer maintenance costs by $120,000.
- Administrative costs will be held at the same level.
The retail computer store’s budgeted total revenue for 2004 would be
- $8,804,000
- $8,460,000
- $8,904,000
- $8,964,000
The retail computer store’s budgeted total costs and expenses for the coming year would be
- $7,252,400
- $7,526,960
- $7,558,960
- $7,893,872