Allscott Company Is Developing Its Budgets for 2016 And,for the First

question 68

Essay

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:
$\begin{array}{lr}\text { Sales (140,000 units) } & \$ 420,000 \\\text { Less: Cost of goods sold } & 280,000\\\text { Gross margin } & 140,000 \\\text { Operating expenses (includes } \$ 28,000 \text { of depreciation) } & \underline{112,000}\\\text { Net income }&\$28,000\end{array}$ 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.

Assess the impact of compounding frequency on investment growth or decline.

Understand the concept of total return from an investment, including income and capital gains yields.

Perform break-even analysis on investments after experiencing gains and losses.

Understand how to calculate income yield from an investment.

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Definitions:

Cash Account

An account recording the amounts of cash received and paid out in transactions.

Credit

A financial term denoting the provision of money, goods, or services with the expectation of future payment.

Consuming Goods

The action of using up goods or products, thereby reducing inventory.

Generating Revenues

The process by which a company earns income through the sale of goods or services.