Final answer:
To create a kaizen-based budgeted income statement for Steve Corporation for March 2015, a 1% reduction from the previous month's costs is applied to both the cost of goods sold and variable operating expenses. The sales figure remains constant, and the exercise results in a net income of $28,328 for March.
Step-by-step explanation:
Kaizen Budgeting for Steve Corporation
The kaizen approach to budgeting involves continuous improvement by gradually reducing costs. To prepare the kaizen-based budgeted income statement for March 2015, we start with the January 2015 data and apply a 1% decrease in the cost of goods sold (COGS) and variable operating expenses for each subsequent month.
January 2015 budgeted COGS: $240,000
March 2015 budgeted COGS: $240,000 x 0.99 x 0.99 (1% reduction in Feb and Mar) = $237,048
January 2015 variable operating expenses (excluding fixed costs of $32,000): $96,000 - $32,000 = $64,000
March 2015 variable operating expenses: $64,000 x 0.99 x 0.99 = $62,624
Fixed operating expenses remain unchanged at $32,000.
Sales are not reduced as they are not part of the kaizen cost reduction and remain at $360,000. The budgeted gross margin for March is then calculated as Sales - COGS, and the budgeted net income is Gross Margin - Total Operating Expenses.
Kaizen-based Budgeted Income Statement for March 2015:
Sales (240,000 units): $360,000
Less: Cost of goods sold: $237,048
Gross Margin: $122,952
Operating Expenses ($32,000 fixed + $62,624 variable): $94,624
Net Income: $28,328