Continuous Improvement (Kaizen) Costing Assume that GE Capital, a division of Ge

Question

Continuous Improvement (Kaizen) Costing

Assume that GE Capital, a division of

General Electric, has been displeased with the costs of servicing its consumer loans. Assume that it has decided to implement a Kaizen-based cost improvement program. For 2017, GE Capital incurred the following costs ($ millions):

Loan processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$10,850

Customer relations......................................................................2,100

Printing, mailing, and postage ...........................................................490

For the next two years, GE Capital expects an increase in consumer loans of 6 percent annually

with related increases in costs.

REQUIRED

a. If the company has a continuous improvement goal of 3 percent each year, develop a budget

for the next two years for the consumer loan department.

b. Identify some possible ways that GE Capital can achieve the Kaizen costing goal.

c. Discuss the potential benets and limitations of GE’s Kaizen costing model.

Explanation / Answer

a. As consumer loans are growing by 6% each year the costs will also grow by 6% each year. But there is an improvement of 3% each year. So the actual growth in costs in 2018 will be = 2017 costs*(1+6%)*(1-3%)

And costs in 2019 will be = 2018 costs*(1+6%)*(1-3%)

So loan processing costs in 2018 = 10,850*1.06*0.97 = 11,155.97 and in 2019 = 11,155.97*1.06*0.97 = 11,470.57

The same is shown in the table below:

b.

Some of the ways which GE capital can use to achieve kaizen costing goal are described as follows:-

c.

Benefits of Kaizen costing are described as follows:-

Particulars 2017 ( Base year) 2018 2019 Loan processing 10,850.00 11,155.97 11,470.57 Customer relations 2,100.00 2,159.22 2,220.11 Printing, mailing, postage 490.00 503.82 518.03 Total 11,340.00 11,659.79 11,988.59

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