A recent directive from Eugenia Yu, CEO of Comtel, has instructed each department to cut its costs by 10 percent. The traditional functional budget for the shipping and receiving department was as follows: 

Therefore, the shipping and receiving department needed to find $43,335 to cut. 

Athan Viris, a recent MBA graduate, was asked to pare $43,335 from the shipping and receiving department’s budget. As a first step, he recast the traditional budget into an activity-based budget.

1. What actions might Viris suggest to attain a $43,335 budget cut? Why would these be the best actions to pursue? 

2. Which budget helped you most in answering number 1? Explain.

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Salaries, 4 employees @ $42,000 $168,000 Benefits @ 20% 33,600 Depreciation, straight-line basis Supplies 76,000 43,400 Overhead @ 35% of direct costs 112,350 $433,350 Total $ 93,000 Receiving, 620,000 kilograms Shipping, 404,000 boxes Handling, 11,200 moves Recordkeeping, 65,000 transactions 26,350 202,000 112,000 Total $433,350