Question

The StamfordStamford store of Gabriel's CornerGabriel's Corner , a chain of small neighborhood convenience stores, has a Kaizen (continuous improvement) approach to budgeting monthly activity costs for each month of 20152015.

Gabriel's CornerGabriel's Corner

has three product categories: soft drinks (35% of cost of goods sold [COGS]), fresh snacks (25% of COGS), and packaged food (40% of COGS). The following table shows the four activities that consume indirect resources at the

StamfordStamford

store, the cost drivers and their rates, and the cost-driver amount budgeted to be consumed by each activity in January

20152015.

1 (Click

the icon to view the four activities and their cost data.)

Each successive month, the budgeted cost-driver rate decreases by

0.10.1 %

relative to the preceding month. So, for example, February's budgeted cost-driver rate is

0.9990.999

times January's budgeted cost-driver rate, and March's budgeted cost-driver rate is

0.9990.999

times the budgeted February rate.

Gabriel's CornerGabriel's Corner

assumes that the budgeted amount of cost-driver usage remains the same each month.

Read the

requirements2.

Requirement 1. What are the total budgeted costs for each activity and the total budgeted indirect cost for March

20152015 ?

Begin by calculating the budgeted cost-driver rates for February, then calculate March. (Round your answers to five decimal places, X.XXXXX.)

	Budgeted Cost-Driver Rates
Activity	January	February	March
Ordering	$85.00
Delivery	84.00
Shelf-stocking	24.00
Customer support	0.22

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
Activity	Drinks	Snacks	Food	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

Gabriel's CornerGabriel's Corner

management overcome them?

Begin by reviewing the following statements and then select whether each one is 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 put more pressure on managers to creatively seek out cost reductions.	(1)
B.	It assumes small incremental improvements each month. It is possible that some cost improvements arise from large discontinuous changes.	(2)
C.	Company takes into consideration employee suggestions. They believe that employees who actually do the job, whether in manufacturing, sales, or distribution, have the best information and knowledge of how the job can be done better.	(3)

For any limitations selected above, determine how

Gabriel's CornerGabriel's Corner

management might overcome them? (Leave unused cells blank.)

(4)

(5)

(6)

1: Data Table

		January 2015	January 2015 Budgeted
		Budgeted	Amount of Cost Driver Used
		Cost-Driver	Soft	Fresh	Packaged
Activity	Cost Driver	Rate	Drinks	Snacks	Food
Ordering	Number of purchase orders	$85	13	26	13
Delivery	Number of deliveries	$84	11	68	21
Shelf-stocking	Hours of stocking time	$24.00	19	178	94
Customer support	Number of items sold	$0.22	4,400	34,300	10,600

2: Requirements

1.	What are the total budgeted costs for each activity and the total budgeted indirect cost for March 20152015 ?
2.	What are the benefits of using a Kaizen approach to budgeting? What are the limitations of this approach, and how might Gabriel's CornerGabriel's Corner management overcome them?

(1)

Benefit

Limitation

(2)

Benefit

Limitation

(3)

Benefit

Limitation

(4)

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.

Suggestions for improvements must come from top management to be effective.

(5)

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.

Suggestions for improvements must come from top management to be effective.

(6)

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.

Suggestions for improvements must come from top management to be effective.

Answer 1