Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 22

Comprehensive Profit Plan (Kaizen Budgeting) (Use information in Problem 10-50 for Spring Manufacturing Company.) Spring Manufacturing Company has had a continuous improvement (kaizen) program for the last two years. According to the kaizen program, the firm is expected to manufacture C12 and D57 with the following specifications:

The company specifies that the variable factory overhead is to decrease by 10% while the fixed factory overhead is to decrease by 5%, except for depreciation expenses. The company does not expect the price of the raw materials to change. However, the hourly wage rate is likely to be $30.
Required
1. What is the budgeted after-tax operating income if the company can attain the expected operation level as prescribed by its kaizen program
2. What are the benefits of Spring Manufacturing Company adopting a continuous-improvement program What are the limitations