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

Sales (100,000)


Less: Cost of Goods sold


Gross profit


Operating expenses


(includes 10,000 of depreciation)


Operating income


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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