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2011 Budgeted Operating Income Analysis

The operating results for a retail computer store in 2010 showed total revenue of $8 million from hardware, software, and maintenance contract sales, with total costs and expenses of $6.92 million, resulting in operating income of $1.08 million. For 2011, the store expects hardware prices to increase 10% while unit sales rise 5%, software sales to increase 8%, and maintenance contracts and costs to rise 5%. Marketing costs will increase 5% and administrative costs will remain flat. The budgeted operating income for 2011 is to be computed based on these assumptions.

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727 views1 page

2011 Budgeted Operating Income Analysis

The operating results for a retail computer store in 2010 showed total revenue of $8 million from hardware, software, and maintenance contract sales, with total costs and expenses of $6.92 million, resulting in operating income of $1.08 million. For 2011, the store expects hardware prices to increase 10% while unit sales rise 5%, software sales to increase 8%, and maintenance contracts and costs to rise 5%. Marketing costs will increase 5% and administrative costs will remain flat. The budgeted operating income for 2011 is to be computed based on these assumptions.

Uploaded by

Amit Pandey
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Solved: The operating results in summarized form for a

retail computer
The operating results in summarized form for a retail computer

The operating results in summarized form for a retail computer store for 2010 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 2011 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 2011.

The operating results in summarized form for a retail computer

ANSWER
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