Yang Company is developing its budgets for 2021 and, for the first time, will use the kaizen approach. The initial 2021 income statement, based on static data from 2020, is as follows:

Sales (160,000 units) $520,000

Less: Cost of goods sold 320,000

Gross margin 200,000

Operating expenses (includes $35,000 of depreciation) 143,000

Net income $57,000

Selling prices for 2021 are expected to increase by 10%, and sales volume in units will decrease by 13%. The cost of goods sold as estimated by the kaizen approach will decline by 12% per unit. Other than depreciation, all other operating costs are expected to decline by 6%.

Required:

a. Describe the concept of kaizen budgeting.

b. Prepare a kaizen-based budgeted income statement for Yang Company for 2021.