Cycle Fit Company Income Statement for the Year Ended December 31,2020

(in thousands)

Revenues:
Equipment	$6,500
Maintenance contracts	1,700
Total revenues		$8,200
Cost of goods sold		4,800
Gross margin		3,400
Operating costs
Marketing	640
Distribution	180
Customer maintenance	1,000
Administration	930
Total operating costs		2,750
Operating income		$650

Cycle Fit Company is a manufacturer of commercial grade exercise bikes that are sold to hotels and health clubs. Maintaining the bikes is an important area of customer satisfaction. Because of increase industry competition, Cycle Fit's financial performance has suffered. However, the introduction of a new model and a predicted upturn in the economy are leading Cycle Fit's managers to predict improved performance in 2021. The following income statement shows results for 2020. B (Click the icon to view the income statement.) Cycle Fit's management team is preparing the 2021 budget and is studying the following information: (Click the icon to view the information.) 1. 2. 3. 4. 5. 6. Selling prices of bikes are expected to increase by 10% due to the introduction of the new model. The selling price of each maintenance contract is expected to remain unchanged from 2020. Bike sales in units are expected to increase by 6%, with a corresponding 6% growth in units of maintenance contracts. Cost of each unit sold is expected to increase by 3% to pay for the necessary technology and quality improvements for the new model. Marketing costs are expected to increase by $200,000. Distribution costs vary in proportion to the number of bikes sold. One additional maintenance technician is to be hired at a total cost of $170,000, which covers wages and related travel costs. The objective is to improve customer service and shorten response time. There are no anticipated changes to adminstration costs. There is no beginning or ending inventory of equipment. 7. 8. 1. Prepare a budgeted income statement for the year ending December 31, 2021. 2. How well does the budget align with Cycle Fit's strategy? 3. How does preparing the budget help Cycle Fit's management team better manage the company