The Bethel store of Henderson Mart, a chain of small neighborhood convenience stores, has a Kaizen (continuous improvement) approach to budgeting monthly activity costs for each month of 2018. Henderson Mart has three product categories: soft drinks (35% of cost of goods sold [COGST), fresh snacks (25% of COGS), and packaged food (40% of COGS). The following table shows the four activities that consume indirect resources at the Bethel store, the cost drivers and their rates, and the cost-driver amount budgeted to be consumed by each activity in January 2018 (Click the icon to view the four activities and their cost data.) (Click the icon to view additional cost driver information.) Read the requirements Requirement 1. What are the total budgeted costs for each activity and the total budgeted indirect cost for March 2018? Begin by calculating the budgeted cost-driver rates for February, then calculate March. (Round your answers to five decimal places, X.XXXXX.) January Budgeted Cost-Driver Rates February March 94.00 $ Activity Ordering Delivery Shelf-stocking Customer support 78.00 20.00 0.23 Now calculate total budgeted cost for each activity and the total budgeted indirect cost for March. (Use the rates you calculated above in your calculations. Round your answers to the nearest whole number.) Soft Fresh Packaged Food Activity Drinks Snacks Total Ordering Delivery Shelf-stocking Customer support Total Requirement 2. What are the benefits of using a Kaizen approach to budgeting? What are the limitations of this approach, and how might Henderson Mart management overcome them? Begin by reviewing the following statements and then select whether each one i a benefit or limitation of a Kaizen approach to budgeting. A. It will show unfavorable variances for managers whose activities do not meet the required monthly cost reductions. This likely will (1) put more pressure on managers to creatively seek out cost reductions. B. It assumes small incremental improvements each month. It is possible that some cost improvements arise from large (2) discontinuous changes. C. Company takes into consideration employee suggestions. They believe that employees who actually do the job, whether in (3) manufacturing, sales, or distribution, have the best information and knowledge of how the job can be done better. For any limitations selected above, determine how Henderson Mart management might overcome them? (If a box is not used in the table leave the box empty; do not select a label.) (4) (5) (6) 1: Data Table January 2018 Budgeted Cost-Driver January 2018 Budgeted Amount of Cost Driver Used Soft Fresh Packaged Cost Driver Rate Drinks Snacks Food Activity Ordering Number of purchase orders $ 94 13 25 13 Delivery Number of deliveries $ 78 12 66 21 Shelf-stocking $ 20.00 17 174 95 Hours of stocking time Number of items sold Customer support $ 0.23 4,300 34,100 11,100 2: More Info Each successive month, the budgeted cost-driver rate decreases by 0.4% relative to the preceding month. So, for example, February's budgeted cost-driver rate is 0.996 times January's budgeted cost-driver rate, and March's budgeted cost-driver rate is 0.996 times the budgeted February rate. Henderson Mart assumes that the budgeted amount of cost-driver usage remains the same each month. 3: Requirements 1. What are the total budgeted costs for each activity and the total budgeted indirect cost for March 2018? 2. What are the benefits of using a Kaizen approach to budgeting? What are the limitations of this approach, and how might Henderson Mart management overcome them? (1) Benefit O Limitation (2) O Benefit O Limitation (3) O Benefit O Limitation O Companies must relieve the pressure on managers by eliminating the monthly cost reduction requirements. Companies need to highlight the importance of seeking large discontinuous improvements as well as small incremental ones. O Suggestions for improvements must come from top management to be effective. (5) O Companies must relieve the pressure on managers by eliminating the monthly cost reduction requirements. O Companies need to highlight the importance of seeking large discontinuous improvements as well as small incremental ones. O Suggestions for improvements must come from top management to be effective
