Prepare Budgeted Financial Statements: The following information is available for Year 1 for Digital Electronics:

Depreciation charges are all fixed and are expected to remain the same for Year 2. Sales volume is expected to increase by 18 percent, but prices are expected to fall by 5 percent. Materials costs are expected to decrease by 8 percent. Variable manufacturing costs are expected to decrease by 2 percent. Fixed manufacturing costs are expected to increase by 5 percent. Variable marketing costs will change with volume. Administrative costs are expected to increase by 10 percent. Inventories are kept at close to zero.

Required: Prepare a budgeted income statement for Year 2.

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Revenues (100,000 units) $725,000 Manufacturing costs: Materials 42,000 Variable cash costs 35,600 Fixed cash costs 81,900 Depreciation (fixed) 249,750 Marketing and administrative costs: Marketing (variable, cash) 105,600 Marketing depreciation 37,400 Administrative (fixed, cash) Administrative depreciation Total costs Operating profits 127,300 18,700 698,250 $ 26,750