Fit Fanatic 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, Fit Fanatic's financial performance has suffered. However, the introduction of a new model and a predicted upturn in the economy are leading Fit Fanatic's managers to predict improved performance in 2021. The following income statement shows results for 2020. (Click the icon to view the income statement.) Fit Fanatic's management team is preparing the 2021 budget and is studying the following information: (Click the icon to view the information.) Read the requirements. Requirement 1. Prepare a budgeted income statement for the year ending December 31, 2021. (Round your answers to the nearest whole thousand.) Fit Fanatic Company Budgeted Income Statement for 2021 (in thousands) Revenues: Equipment Maintenance contracts Total revenues Cost of goods sold Gross margin Operating costs Marketing Distribution Customer maintenance Fit Fanatic Company Income Statement for the Year Ended December 31, 2020 (in thousands) Revenues: Equipment 9,500 1,900 Maintenance contracts Total revenues 11,400 4,200 7,200 Cost of goods sold Gross margin Operating costs Marketing 620 Distribution 110 Customer maintenance 1,100 950 Administration 2,780 Total operating costs 4,420 Operating income 1. Prepare a budgeted income statement for the year ending December 31, 2021. 2. How well does the budget align with Fit Fanatic's strategy? 3. How does preparing the budget help Fit Fanatic's management team better manage the company? 1. 2. 3. 4. Selling prices of bikes are expected to increase by 15% 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 4% to pay for the necessary technology and quality improvements for the new model. Marketing costs are expected to increase by $290,000. Distribution costs vary in proportion to the number of bikes sold. One additional maintenance technician is to be hired at a total cost of $180,000, 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. 5. 6. 7. 8