Gulf States Manufacturing has the following data from year 1 operations, which are to be used for developing year 2 budget estimates:

Sales revenues (18,000 units) $ 1,620,000

Manufacturing costs

Materials $ 289,000

Variable cash costs 395,000

Fixed cash costs 159,000

Depreciation (fixed) 195,000

Marketing and administrative costs

Marketing (variable, cash) 208,000

Marketing depreciation 51,000

Administrative (fixed, cash) 204,000

Administrative depreciation $ 18,000

Total costs $ 1,519,000

Operating profits $ 101,000

All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $16,150 will be replaced in year 2 with new equipment that will incur an annual depreciation charge of $22,600. Sales volume and prices are expected to increase by 10 percent and 6 percent, respectively. On a per-unit basis, expectations are that materials costs will increase by 8 percent and variable manufacturing costs will decrease by 2 percent. Fixed cash manufacturing costs are expected to decrease by 6 percent.

Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 6 percent. Inventories are kept at zero. Gulf States operates on a cash basis.

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