All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to fall by 7 percent, but prices are expected to rise by 18 percent. Material costs per unit are expected to increase by 10 percent. Other unit variable manufacturing costs are expected to decrease by 5 percent per unit. Fixed cash costs are expected to increase by 6 percent.

Variable marketing costs will change with unit volume. Administrative cash costs are expected to increase by 3 percent. Inventories are kept at zero. Pepper Products operates on a cash basis.

Required:

Prepare a budgeted income statement for year 2.

Sales revenue (140,000 units $3.360,000 Manufacturing costs Materials Variable cash costs Fixed cash costs Depreciation (fixed) $ 199,000 169,000 390,000 1,189,000 Marketing and administrative costs Marketing (variable, cash) Marketing depreciation Administrative (fixed, cash) Administrative depreciation 502,000 178,000 606,000 90,000 $3,323,000 $ 37,000 Total costs Operating profits