Budgeted Income StatementPalmer Company is a manufacturer of video conferencing products. Marketing projections determine the amount of regularunits produced. In addition, specialized units are made after an order is received. Customer satisfaction requires regularmaintenance of the video equipment. The video equipment market segment has recently declined and this has generated financialconcerns for the management of Palmer.

The following income statement shows results for 2017.

Palmer Company

Income Statement

For the Year Ended December 31, 2017

Revenues:

Equipment 6,000,000

Maintenance 1,800,000

Total Revenues 7,800,000

Cost of Goods Sold 4,600,000

Gross Margin 3,200,000

Operating Costs

Marketing. 600,000

Distribution 150,000

Customer maintenance 1,000,000

Administration 900,000

Total Operating Costs 2,650,000

Operating Income 550,000

Palmer is in the process of preparing the 2018 budget and management is evaluating the following information:

1. Selling prices of equipment are expected to increase by 10% as the economic recovery begins. The selling price of eachmaintenance contract is expected to remain unchanged from 2017.

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

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

4. Marketing costs are expected to increase by $250,000, but administration costs are expected to remain at 2007 levels.

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

6. Two maintenance technicians are to be hired at a total cost of $130,000, which covers wages and related travel costs. Theobjective is to improve customer service and shorten response time

.7. There is no amount of beginning or ending inventory of equipment.

Required: make a budgeted income statement for the year ended December 31, 2018.

Palmer Company

Budegeted Income Statement

For the Year Ended December 31, 2018

Revenues:

Equipment

Maintenance

Total RevenuesCost of Goods Sold

Gross Margin

Operating Costs

Marketing

Distribution

Customer maintenance

Administration

Total Operating Costs

Operating Income