Kaizen approach to activity-based budgeting
Family Supermarkets (FS) has a Kaizen (continuous improvement) approach to budgeting monthly activity costs for each month of 2008. Each successive months, the budgeted cost-driver rate is 0.998 times January's budgeted cost-driver rate, and March's budgeted cost-driver rate is 0.998 times the budgeted February 2008 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 2008?
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?