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 also anticipates the following changes:
Decrease in variable factory overhead	10.00%
Decrase in total fixed overhead costs	5.00%
Hourly wage rate, direct labor	$30.00

 

			Direct Materials Information
			RM1	RM2	RM3
Cost per pound			$2.00	$2.50	$0.50
Estimated beginning inventory in pounds			3,000	1,500	1,000
Desired ending inventory in pounds			4,000	1,000	1,500

    

Income tax = 40%

Required

1. What is the budgeted after-tax operating income if the firm 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 thelimitations?

Transcribed Image Text:

D57 C12 Requirements for each finished component: pound RM1 pounds pound 3.6 0.8 pound 2 RM2 RM3 pounds hours 1.8 Direct labor hours 1.5