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Q1) Corporation reported year end information for 2008 which is given below:

Sales (100,000)

$250,000

Less: Cost of Goods sold

150,000

Gross profit

100,000

Operating expenses

 

(includes 10,000 of depreciation)

60,000

Operating income

40,000

Corporation is developing budget for 2009.  In 2009 company would like to raise selling prices by 15% and as result expects reduce in sales volume of 8%.  It is looking to use Kaizen approach to budgeting in 2009.  Under kaizen approach, cost of goods sold and variable operating expenses would be budgeted to decrease by one percent without considering any changes in sales.  Other than depreciation, all operating costs are variable.

A)  Make a budgeted income statement for 2009.

B)  Must it change selling price?

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