Chapter 6, Problem 6.47P

Kaizen budgeting for carbon emissions. Apex Chemical Company currently operates three manufacturing plants in Colorado, Utah, and Arizona. Annual carbon emissions for these plants in the first quarter of 2018 are 125,000 metric tons per quarter (or 500,000 metric tons in 2018). Apex management is investigating improved manufacturing techniques that will reduce annual carbon emissions to below 475,000 metric tons so that the company can meet Environmental Protection Agency guidelines by 2019. Costs and benefits are as follows:

Total cost to reduce carbon emissions	$10 per metric ton reduced in 2019 below 500,000 metric tons
Fine in 2019 if EPA guidelines are not met	$300,000

Apex Management has chosen to use Kaizen budgeting to achieve its goal for carbon emissions.

1. 1. If Apex reduces emissions by 1% each quarter, beginning with the second quarter of 2018, will the company reach its goal of 475,000 metric tons by the end of 2019?
2. 2. What would be the net financial cost or benefit of their plan? Ignore the time value of money.
3. 3. What factors other than cost might weigh into Apex’s decision to carry out this plan?