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 sold280,000

Gross margin140,000

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.

27) Steve Corporation is using the kaizen approach to budgeting for 2015. The budgeted income statement for January 2015 is as follows:

Sales (240,000 units)$360,000

Less: Cost of goods sold240,000

Gross margin120,000

Operating expenses (includes $32,000 of fixed costs)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 2015.

28) Describe the concept of kaizen budgeting.

29) Describe some of the drawbacks of using the operating budget as a control device.