Question

The following information is available for 2018 for XYZ Products:

                        Revenue (300,000 units)                                           $2,400,000

                        Manufacturing costs:                                       

                        Materials                                                                       400,000

                        Variable overhead cash costs                                         270,000

                        Fixed overhead cash costs                                             150,000

                        Depreciation                                                                   500,000

                        Marketing and administrative costs:                                 

                        Marketing variable costs                                                300,000

                        Marketing depreciation                                                    50,000

                        Administrative cash costs                                              200,000

                        Administrative depreciation                                            30,000

                        Total costs                                                                 $1,900,000

                        Operating profits                                                         $ 500,000

All depreciation charges are expected to remain the same for 2019. Sales volume is expected to increase by 15 percent, but prices are expected to fall by 10 percent. Material costs are expected to decrease by 12 percent. Variable manufacturing overhead costs are expected to decrease by 4 percent. Fixed manufacturing overhead costs are expected to increase by 8 percent.

Variable marketing costs change with volume. Administrative cash costs are expected to increase by 16 percent. Inventories are kept at zero.

Required:

a) Prepare a budgeted income statement for 2019. Round budget line items to the nearest dollar. Computations are necessary

b)How might Kaizen budgeting have been used to prepare the 2019 pro forma income statement? No computations are necessary.

Answer 1

a. XYZ Products

Budgeted Income Statement

For 2019

Revenue ( 300,000 x 115% x $ 8.00 x 90%)		$ 2,484,000
Cost of Goods Sold
Materials ( $ 400,000 x 115% x 88% )	404,800
Variable Overhead ( $ 270,000 x 115% x 96%)	298,080
Fixed Manufacturing Overhead ( $ 150,000 x 108%)	162,000
Depreciation	500,000	1,364,880
Gross Profit		1,119,120
Marketing and Administrative Costs:
Marketing Variable Costs	345,000
Marketing Depreciation	50,000
Administrative Cash Costs	232,000
Administrative Depreciation	30,000	657,000
Operating Profits		462,120