The operating results in summarized form for a retail computer store for 20X1 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 20X2 and has made the following assumptions:
The selling prices of hardware are expected to increase 10% but there will be no selling price increases for software or maintenance contracts.
Hardware unit sales are expected to increase 5% with a corresponding 5% growth in the number of maintenance contracts; growth in software unit sales is estimated at 8%.
The cost of hardware and software is expected to increase 4%.
Marketing expenses will be increased 5% 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.
The retail computer store's budgeted total revenue for 20X2 would be:
$8,804,000.
$8,460,000.
$8,904,000.
$8,964,000.
Answer is $8,804,000.
Hardware sales = $4,800,000 x 1.05 x 1.10 = $5,544,000
Software sales = $2,000,000 x 1.08 = $2,160,000
Maintenance contracts = $1,200,000 x 1.05 = $1,260,000
———-
Total budgeted revenue for 20X2 $8,964,000
Hardware sales = $4,800,000 x 1.05 x 1.10 = $5,544,000 Correct
Software sales = $2,000,000 Incorrect(*)
Maintenance contracts = $1,200,000 x 1.05 = $1,260,000 Correct
———-
Total $8,804,000 Correct
where did 1.1 come from in the hardware sales. I think i am misreading the question.?
.