Question

7. Steve Corporation is using the kaizen approach to budgeting for 2018. The budgeted income statement for January 2018 is as follows: Sales (240,000 units) Less: Cost of goods sold $360,000 240,000 Gross margin Operating expenses (includes $32,000 of fixed costs) 120,000 96,000 Net income $24.000 Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 1% per month Required: Prepare a kaizen-based budgeted income statement for March of 2018.

Answer 1

Variable operating expense in January = Total operating expense in January - Fixed operating expense = 96000 - 32000	64000
Variable operating expense in February = Variable operating expense in January * ( 1 - 1% ) = 64000 * ( 1 - 1% )	63360
Variable operating expense in March = Variable operating expense in February * ( 1 - 1% ) = 63360 * ( 1 - 1% )	62726
Cost of goods sold in February = Cost of goods sold in January * ( 1 - 1% ) = 240000 * ( 1 - 1% )	237600
Cost of goods sold in March = Cost of goods sold in February * ( 1 - 1% ) = 237600 * ( 1 - 1% )	235224

Budgeted income statement for March of 2018
Sales	360000
Less: Cost of goods sold	235224
Gross margin	124776
Operating expense [ 62726 + 32000 ]	94726
Net income	30050