The Ninevah store of Nile Mart, a chain of small neighborhood convenience stores, is preparing its activity-based budget for January 2015. Nile Mart has three product categories: soft drinks, fresh produce, and packaged food. Each category of product contributes to the cost of goods sold in the following proportions respectively: 45%;15% and 40%. The following table shows the four activities that consume indirect resources at the Ninevah store, the cost drivers and their rates, and the cost-driver amount budgeted to be consumed by each activity in January 2015. Turn over Page 3 Question 1 Part C] continued... Required: 1. Using an activity based approach Nile Mart determined the total budgeted indirect costs, cost of each activity and cost of each product as follows: Is it better for Nile Mart to base the allocation of indirect costs on the activity-based approach to budgeting, or should they allocate indirect costs using a cost of goods sold based allocation? Give a reason for your answer. ( 5 marks) 2. Nile Mart is implementing a plan for continuous improvement - a Kaizen approach to budgeting monthly activity costs for each month of 2015 . For each successive month, the budgeted cost-driver rate will decrease by 1% relative to the preceding month. New training in shelf stocking is expected to create efficiencies that will cause a 2% decrease in its cost driver per month. Nile Mart assumes that the budgeted amount of cost-driver usage will remain the same each month. Using an activity based approach Nile Mart determined the total budgeted indirect costs, cost of each activity and cost of each product as follows: Is it better for Nile Mart to base the allocation of indirect costs on the activity-based approach to budgeting, or should they allocate indirect costs using a cost of goods sold based allocation? Give a reason for your answer. (5 marks) 2. Nile Mart is implementing a plan for continuous improvement - a Kaizen approach to budgeting monthly activity costs for each month of 2015 . For each successive month, the budgeted cost-driver rate will decrease by 1% relative to the preceding month. New training in shelf stocking is expected to create efficiencies that will cause a 2% decrease in its cost driver per month. Nile Mart assumes that the budgeted amount of cost-driver usage will remain the same each month. a) What are the total budgeted cost for each activity and the total budgeted indirect cost for March 2015? b) What are the benefits of using a Kaizen approach to budgeting? (9 marks) c) What are the limitations of this approach? (2 marks) (1 marks)