Question

*26) Allscott Company is developing its budgets for 2016 and for the first time, will use the kaizen approach. The initial 2016 income statement, based on static data from 2015, is as follows:*

Sales (140,000 units) $420,000
Less: Cost of goods sold 280,000

Gross margin 140,000
Operating expenses (includes $28,000 of depreciation) 112,000

Net income $28,000
Selling prices for 2016 are expected to increase by 8%, and sales volume in units will decrease by 10%. The cost of goods sold as estimated by the kaizen approach will decline by 10% per unit. Other than depreciation, all other operating costs are expected to decline by 5%.

Required:
Prepare a kaizen-based budgeted income statement for 2016.
Objective 6.6

Answer 1

To prepare a kaizen-based budgeted income statement for 2016, you need to apply changes to the initial income statement. The selling price will increase by 8% and the sales volume will decrease by 10%. The cost of goods sold per unit will decrease by 10% and other operating costs will decrease by 5%.

Step-by-step explanation:

To prepare a kaizen-based budgeted income statement for 2016, we need to apply the changes mentioned in the question to the initial income statement. Firstly, the selling price will increase by 8%, so we can calculate the new sales revenue by multiplying the old revenue by 1.08. Next, the sales volume will decrease by 10%, so we can calculate the new sales volume by multiplying the old volume by 0.9. Then, the cost of goods sold per unit will decrease by 10%, so we can calculate the new cost of goods sold by multiplying the old cost by 0.9. Finally, the other operating costs will decrease by 5%, so we can calculate the new operating expenses by multiplying the old expenses by 0.95.

Using these calculations, we can generate the kaizen-based budgeted income statement for 2016:

Sales (126,000 units) $453,600

Less: Cost of goods sold (126,000 units x $2520) $317,520

Gross margin $136,080

Operating expenses (includes $28,000 of depreciation) $106,400

Net income $29,680