Question

A recent directive from Laura Jensen, CEO of Hermantown Manufacturing, had instructed each department to cut its costs by 15%. The traditional functional budget for the shipping and receiving department was as follows:
Salaries, four employees at $63,000 . $252,000
Benefits at 10% .......... 50,400
Depreciation, straight-line basis ... 114,000
Supplies ............. 65,100
Overhead at 35% of above costs .... 168,525
Total ............... $650,025
Therefore, the shipping and receiving department needed to find $97,504 to cut.
Janice Starke, a recent MBA graduate, was asked to pare $97,504 from the shipping and receiving department’s budget. As a first step, she recast the traditional budget into an activity-based budget.
Receiving, 620,000 pounds .... $139,500
Shipping, 404,000 boxes ..... 303,000
Handling, 11,200 moves ...... 168,000
Record keeping, 65,000 transactions . 39,525
Total ............ $650,025
1. What actions might Starke suggest to attain a $97,504 budget cut? Why would these be the best actions to pursue?
2. Which budget helped you most in answering number 1? Explain.



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  • CreatedNovember 19, 2014
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