1. The following information is available for 2017 for Baxter Corporation:
Revenue (100,000 units) $725,000
Manufacturing costs:
Materials 42,000
Variable overhead cash costs 35,500
Fixed overhead cash costs 81,900
Depreciation 249,750
Marketing and administrative costs:
Marketing variable cash costs 105,600
Marketing depreciation 37,400
Administrative fixed cash 127,300
Administrative depreciation 18,800
Total costs $698,250
Operating income $26,750
All depreciation charges are fixed costs and are expected to remain the same for 2018. Sales volume is expected to increase by 18 percent, but prices are expected to fall by 5 percent. Material costs are expected to decrease by 8 percent. Variable manufacturing overhead cash costs are expected to decrease by 2 percent per unit. Fixed manufacturing overhead cash costs are expected to increase by 5 percent.
Variable marketing cash costs change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero.
Required:
a) Prepare a budgeted income statement for 2018. Explain how Kaizen budgeting could be used by Baxter. No computations are necessary for this part.