Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates: Sales revenues (22,000 units) Manufacturing costs Materials Variable cash costs Fixed cash costs Depreciation (fixed) Marketing and administrative costs Marketing (variable, cash) Administrative depreciation $1,980,000 $ 353,000 483,000 195,000 239,000 256,000 Marketing depreciation 63,000 Administrative (fixed, cash) 252,000 $ 22,000 $1,863,000 $ 117,000 Total costs Operating profits All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $16,550 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $23,000 Sales volume and prices are expected to increase by 13 percent and 7 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 11 percent and variable manufacturing costs will decrease by 3 percent. Fixed cash manufacturing costs are expected to decrease by 8 percent. Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 9 percent. Inventories are kept at zero. Gulf States operates on a cash basis.