Problem (4 points)

Sampson Merchandising Firm is developing its budgets for Year 2. The Year 1 income statement is as follows:

Sales (200,000 units)$500,000Less Cost of goods sold 325,000Gross profit$175,000Operating expenses (includes $20,000 of depreciation) 120,000Net income$ 55,000

Selling prices will increase by 10 percent, and sales volume in units will decrease by 6 percent. The cost of goods sold as a percent of sales will decrease to 62 percent. Other than depreciation, all operating costs are variable.

Prepare a budgeted income statement for Year 2.