Spin Out 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, Spin Out's financial performance has suffered. However, the introduction of a new model and a predicted upturn in the economy are leading Spin Out's managers to predict improved performance in 2021. The following income statement shows results for 2020.

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Spin out Company Income Statement for the Year Ended December 31, 2020

(in thousands)

Revenues:
Equipment	$9,500
Maintenance contracts	1,000
Total revenues		$10,500
Cost of goods sold		4,700
Gross margin		5,800
Operating costs
Marketing	650
Distribution	120
Customer maintenance	1,300
Administration	920
Total operating costs		2,990
Operating income		$2,810

Spin Out's management team is preparing the 2021 budget and is studying the following information:

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1.	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.
2.	Bike sales in units are expected to increase by 4%, with a corresponding 4% growth in units of maintenance contracts.
3.	Cost of each unit sold is expected to increase by 5% to pay for the necessary technology and quality improvements for the new model.
4.	Marketing costs are expected to increase by $270,000.
5.	Distribution costs vary in proportion to the number of bikes sold.
6.	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.
7.	There are no anticipated changes to administration costs.
8.	There is no beginning or ending inventory of equipment

Read the requirements

1.	Prepare a budgeted income statement for the year ending December 31, 2021.
2.	How well does the budget align with Spin Out's strategy?
3.	How does preparing the budget help Spin Out's management team better manage the company?

Requirement 1. Prepare a budgeted income statement for the year ending December 31, 2021.

(Round your answers to the nearest whole thousand.)

Spin Out 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
Administration
Total operating costs
Operating income