Chapter 9 Exercises

Step-by-Step Exercises

If the item targeted for continuous improvement is variable, take both the improvement and sales volume into consideration.

Question 1

Senegal Corporation plans to increase its sales price by 1% each month next year, and sales volume is expected to increase by 2% each month. December sales were $2,000,000.

Prepare a Kaizen budget for revenue for the next six months.

Question 2

Congo, Inc. hopes to improve spending on variable overhead by 2% each month over the next three months. Variable overhead last month was $560,000 for sales of 80,000 units. Next month, sales are expected to drop to 75,000 units, but sales are expected to increase to 85,000 the following month, and to 90,000 the month after that.

Prepare a Kaizen budget for variable overhead for the next three months.

Question 3

Cameroon Company had unit sales of 1,000,000 last month, when its direct materials cost $4,000,000. Cameroon expects unit sales to increase by 5% each month while they strive to improve direct materials cost by 1% each month.

Prepare a Kaizen budget for direct materials for the next three months.

If the item targeted for continuous improvement is a fixed cost, apply the improvement to the total amount of the fixed cost without considering sales volume.

Question 4

Namibia, Inc. spent $250,000 on fixed period costs in March. Namibia hopes to improve spending on these costs by 3% each month from through September.

Prepare a Kaizen budget for fixed period costs from April through September.

Question 5

Gaborone Company currently spends $7,000 on equipment rental each month. By finding new vendors and negotiating with current ones, Gaborone is targeting a 5% reduction per month on equipment rental over the next four months.

Prepare a Kaizen budget for rental equipment for the next four months.

Question 6

Malawi, Inc. incurs fixed manufacturing overhead costs of $300,000 each month but hopes to reduce that amount by 1% per month over the next six months.

Prepare a Kaizen budget for fixed overhead for the next six months.

Complete Problems

Question 7

Ghana Company currently spends $1,000,000 on fixed overhead each month. Ghana hopes to continuously improve spending on fixed overhead by 2% per month.

Prepare a Kaizen budget for fixed overhead for the next six months.

Question 8

Mauritania, Inc. is trying to reduce the amount of time direct labor spends on assembling products. In June, each unit will require 3 hours to manufacture, costing $40 per hour. Mauritania has planned sales of 20,000 units in June; 25,000 in July; 23,000 in August; and 30,000 in September. Mauritania hopes to improve direct labor time by 3% each month.

Prepare a Kaizen budget for direct labor time and costs for June through September.

Question 9

Gambia Company hopes to continuously improve direct materials cost per unit by 1% each month over the course of the next year. Currently, Gambia manufactures 20,000 units per month during the first quarter, 25,000 units per month during the second and third quarters, and 30,000 per month during the fourth quarter. Direct materials cost $200 per unit in December.

Prepare a Kaizen budget for direct materials for the upcoming year.

Question 10

Togo Company has budgeted for sales revenue of $3,000,000 next month for sales of 100,000 units. Togo hopes to continuously improve their sales price by 4% over the next six months. Sales volume is expected to increase by 5% each month over the same time frame.

Prepare a Kaizen budget for revenues for the next six months.

Question 11

Kenya Company has prepared the following budget for June:

Kenya expects sales volume to increase by 10% each month for the next three months. Kenya hopes to improve their sales price by 1% per month, their variable costs by 2% per month, and their fixed costs by 3% per month.

Using Kaizen budgeting, prepare a budgeted income statement for July through September.

Question 12

Eritrea Company has budgeted direct labor costs of $1,800,000 and fixed factory overhead costs of $485,000 for the month of January, when sales are expected to be 60,000 units. Eritrea hopes to continuously improve both costs at a rate of 1% per month. Sales are expected to grow at a rate of 2% per month.

Prepare a Kaizen budget for the first six months of the year.

Question 13

Morocco, Inc. has budgeted the following for January:

Unit sales	20,000
Direct materials cost	68,000
Fixed manufacturing overhead cost	35,000

Morocco believes that unit sales will increase by 5% per month each month for the next year. Morocco plans to continuously improve direct materials costs by 1% each month and fixed manufacturing overhead costs by 2% each month.

Prepare a Kaizen budget for direct materials and fixed manufacturing overhead costs for January, February, March, and April.

Assignment Problem

Note: Check figures are not provided for assignment problems so your instructor may use them for homework.

Question 14

Burkina Faso, Inc. has prepared the following budget for September:

Cost of goods sold is three-fourths variable, and period costs are two-thirds variable. Sales are planned as follows:

Burkina Faso hopes to reduce fixed costs by 1% each month and reduce variable costs by 2% each month.

Using Kaizen budgeting, prepare a budgeted income statement for October through December.

Challenge Problem

Question 15

UgandaCo prepared the following budget for June as part of their master budget for the calendar year:

UgandaCo prepared their annual budget under the assumption that sales would increase by 5% per month throughout the first quarter, then hold steady throughout the second quarter. One third of variable manufacturing costs in June were spent on direct materials, and one half of fixed operating expenses were spent on advertising. UgandaCo prepared their budget assuming that direct materials cost would continuously improve at a rate of 2% per month throughout the year and advertising costs would continuously improve at a rate of 3% per quarter throughout the year.

What was UgandaCo’s budgeted operating income for January?

Pre-Assessment Problem

Use this problem to check whether you are fully prepared for the assessment. Work the problem under assessment conditions – don’t use any notes or other materials!

Question 16

Gideon, Inc. has the following budgeted income statement for April:

Sales are expected to increase by 8% each month. Gideon would like to continuously reduce its variable costs by 2% each month, and its fixed costs by 3% each month.

Prepare a Kaizen budget for variable and fixed costs for May, June, and July.