Prepare Budgeted Financial Statements: Audiodisc, Inc., is a fast growing start-up firm that manufactures compact disc players. The following income statement is available for Year 1.

Sales volume is expected to increase by 25 percent in Year 2. while the sales price is expected to fall 10 percent. Materials prices are expected to increase 4 percent. Variable manufacturing costs are expected to increase by 3 percent in Year 2. Fixed manufacturing costs are expected to increase 5 percent. Variable marketing costs will change with sales volume. Administrative costs are expected to increase by 10 percent. Audiodisc operates on a cash basis and maintains inventories close to zero. Depreciation is fixed and should remain unchanged over the next three years.

Required: Prepare a budgeted income statement for Year 2.

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Revenues (100 units @ $250/unit) $25,000 Less: Manufacturing costs: Materials 1,450 Variable costs 1,228 Fixed costs 2,285 Depreciation (fixed) 8,590 Total manufacturing costs 13,553 Gross profit margin 11,447 Less: Marketing: Variable costs Depreciation (fixed) Administrative: Fixed costs (cash) Depreciation (fixed) Total marketing and administrative Operating profits 3,640 1,289 4,390 649 9,968 $ 1,479