Easecom Company is a manufacturer of videoconferencing products. Regular units are
manufactured to meet marketing projections, and specialized units are made after an
order is received. Maintaining the videoconferencing equipment is an important area of
customer satisfaction. With the recent downturn in the computer industry, the
videoconferencing equipment segment has suffered, leading to a decline in Easecom’s
financial performance. The following income statement shows results for 2020:
Easecom Company
Income Statement
For the Year Ended December 31, 2020 (in thousands)
Revenues:
Equipment $6,000
Maintenance contracts 1,800
Total revenues $7,800
Cost of goods sold -4,600
Gross margin 3,200
Operating Costs
Marketing 600
Distribution 150
Customer maintenance 1,000
Administration 900
Total operating costs -2,650
Operating income $550
Easecom’s management team is in the process of preparing the 2021 budget and is
studying the following information:
1. Selling prices of equipment are expected to increase by 10% as the economic recovery
begins. The selling price of each maintenance contract is expected to remain unchanged
from 2020.
2. Equipment sales in units are expected to increase by 6%, with a corresponding 6%
growth in units of maintenance contracts.
3. Cost of each unit sold is expected to increase by 3% to pay for the necessary
technology and quality improvements.
4. Marketing costs are expected to increase by $250,000, but administration costs are
expected to remain at 2020 levels.
5. Distribution costs vary in proportion to the number of units of equipment sold.
6. Two maintenance technicians are to be hired at a total cost of $130,000, which covers
wages and related travel costs. The objective is to improve customer service and shorten
response time.
7. There is no beginning or ending inventory of equipment.
Prepare a budgeted income statement for the year ending December 31, 2021.