Question:
Kaizen approach to activity-based budgeting (continuation of 6-24). Family Supermarkets (FS) has a kaizen (continuous improvement) approach to budgeting monthly activity costs for each month of 2011. 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 2011 rate. FS assumes that the budgeted amount of cost-driver usage remains the same each month.
1. What is the total budgeted cost for each activity and the total budgeted indirect cost for March 2011?
2. What are the benefits of using a kaizen approach to budgeting? What are the limitations of this approach, and how might FS management overcome them?