7-39 Activity-Based Budgeting A recent directive from Laura Jensen, CEO of Hermantown Manufacturing, had instructed each department to cut its costs by 15%. The traditional functional budget for the shipping and receiving department was as follows:

Salaries, four employees at $63,000 $252,000 Bene" ts at 10% 50,400 Depreciation, straight-line basis 114,000 Supplies 65,100 Overhead at 35% of above costs 168,525 Total $650,025

Therefore, the shipping and receiving department needed to find $97,504 to cut. Janice Starke, a recent MBA graduate, was asked to pare $97,504 from the shipping and receiving departments budget. As a " rst step, she recast the traditional budget into an activity-based budget.

Receiving, 620,000 pounds $139,500 Shipping, 404,000 boxes 303,000 Handling, 11,200 moves 168,000 Record keeping, 65,000 transactions 39,525 Total $650,025

1. What actions might Starke suggest to attain a $97,504 budget cut? Why would these be the best actions to pursue? 2. Which budget helped you most in answering number 1? Explain.