WY manufactures and sells a range of stationery products. The company is not dominant in the market in which it operates and, as a result, it has to accept the market price for each of its products. As the production operations are standardised, the company has employed a standard costing system. A set of standard costs for each of the company’s products is agreed at the start of each financial year by the company directors and monthly variance reports are discussed at each monthly board meeting.

A few weeks ago the production director attended a conference on World Class Manufacturing and was very interested in a presentation on Kaizen Costing.

Explain the principles of Kaizen Costing and discuss how Kaizen Costing conflicts with WY’s current reporting procedures.