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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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