A recent directive from Sandy Jensen, Managing Director of Duluth Manufacturing, had instructed each department to cut its costs by 10 per cent. The traditional functional budget for the shipping and receiving department was as follows:

Therefore, the shipping and receiving department needed to find €43,335 to cut.

June Steele, a recent MBA graduate, was asked to pare €43,335 from the shipping and receiving department’s budget. As a first step, she recast the traditional budget into an activity-based budget.

1. What actions might Steele suggest attaining a €43,335 budget cut? Why would these be the best actions to pursue?

2. Which budget helped you most in answering number 1? Explain.

Transcribed Image Text:

Salaries, four employees at €42,000 Benefits at 20% Depreciation, straight-line basis Supplies Overhead at 35% of direct costs Total €168,000 33,600 76,000 43,400 112,350 €433,350