The operating results in summarized form for a retail computer store for 2018 are:
Revenue:
Hardware sales $4,800,000
Software sales 2,000,000
Maintenance contracts
1,200,000
Total revenue $8,000,000
Costs and expenses:
Cost of hardware sales $3,360,000
Cost of software sales 1,200,000
Marketing expenses 600,000
Customer maintenance costs 640,000
Administrative expenses
1,120,000
Total costs and expenses
$6,920,000
Operating income
$1,080,000
The computer store is in the process of formulating its operating budget for 2019 and has made the following assumptions:
The selling prices of hardware are expected to increase 10 percent but there will be no selling price increases for software and maintenance contracts.
Hardware unit sales are expected to increase 5 percent with a corresponding 5 percent growth in the number of maintenance contracts; growth in unit software sales is estimated at 8 percent.
The cost of hardware and software is expected to increase 4 percent.
Marketing expenses will be increased 5 percent in the coming year.
Three technicians will be added to the customer maintenance operations in the coming year, increasing the customer maintenance costs by $120,000.
Administrative costs will be held at the same level.
Compute the computer retail store’s budgeted operating income for 2019.
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