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compute the computer retail store rsquo s budgeted operating income for 2011 643075

(Budgeted income statement) The operating results in summarized form for a retail computer store for 2010 are:


Hardware sales

$ 4,800,000

Software sales


Maintenance contracts


Total revenue

$ 8,000,000

Costs and expenses:

Cost of hardware sales

$ 3,360,000

Cost of software sales


Marketing expenses


Customer maintenance costs


Administrative expenses


Total costs and expenses

$ (6,920,000)

Operating income

$ 1,080,000

The computer store is in the process of formulating its operating budget for 2011 and has made the following assumptions:

  • The selling prices of hardware are expected to increase 10 percent but there will be no selling price increases for software and maintenance contracts.
  • Hardware unit sales are expected to increase 5 percent with a corresponding 5 per cent growth in the number of maintenance contracts; growth in unit software sales is estimated at 8 percent.
  • The cost of hardware and software is expected to increase 4 percent.
  • Marketing expenses will be increased 5 percent 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.

Compute the computer retail store’s budgeted operating income for 2011.

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