Budgeted income statement. (CMA, adapted) The Easecom Company is a manufacturer of videoconferencing products. Regular units are manufactured to meet marketing projections, and specialized units are made after an order is received. Maintaining the videoconferencing equipment is an important area of customer satisfaction. With the recent downturn in the computer industry, the videoconferencing equipment segment has suffered, leading to a decline in Easecom’s financial performance. The following income statementshows results for the year 2007:

Income Statement for the Easecom Company for the Year Ended December 31,2007 (in thousands)

Revenues:

Equipment $7,200 Maintenance contracts 2,160 Total revenues $9,360 Cost of goods sold 5,520 Gross margin 3,840 Operating costs:

Marketing 720 Distribution 180 Customer maintenance 1,200 Administration 1,080 Total operating costs 3,180 Operating income $ 660 Easecom’s management team is in the process of preparing the 2008 budget and is studying the following information:

a. Selling prices of equipment are expected to increase by 10% as the economic recovery begins. The selling price of each maintenance contract is unchanged from 2007.

b. Equipment sales in units are expected to increase by 6%, with a corresponding 6% growth in units of maintenance contracts.

c. The cost of each unit sold is expected to increase by 3 % to pay for the necessary technology and quality improvements.

d. Marketing costs are expected to increase by $300,000, but administration costs are expected to be held at 2007 levels.

e. Distribution costs vary in proportion to the number of units of equipment sold.

f. Two maintenance technicians are to be added at a total cost of $150,000, which covers wages and related travel costs. The objective is to improve customer service and shorten response time.

g. There is no beginning or ending inventory of equipment.

Required Prepare a budgeted income statement for 2008.