Reference no: EM131774733

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.