John Dawling Brothers is a company that produces two well-known domestic appliance models, the Tablefrig and Tablefrez. The following details have been estimated for 2021 for the sales and production of the appliances:

2021 Sales

Total cost estimates for Tablefrig and Tablefrez

Thirty-four percent of direct materials and 20% of direct labor costs are attributable to the production of Tablefrig while the rest are for the production of Tablefrez. Variable overheads are absorbed on direct labor. The demand for the Tablefrig has been falling and a new model, Tablefrig II, will be introduced in 2 years. This new model, which will incorporate a freezer compartment, will sell for $115 per unit.

The estimated costs of Tablefrig II

The fixed overhead is $1 million.
Following the introduction of the new model, sales in 2021 are estimated as:

Required

1. Prepare the budgeted operating income for 2021 showing the contributions from each model.
2. Prepare the budgeted operating income for 2022 showing the contributions from each model.
3. What purpose is served by preparing an operating income budget?

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Product Units Tablefrig 40,000 Tablefrez 80,000 Price $75 $90