Final answer:
The statement regarding Kaizen budgeting accounting for inflation with small incremental cost increases each period is false. Kaizen budgeting aims for continuous improvement and cost reduction rather than simply adjusting for inflation. It is focused on efficiency and productivity to mitigate inflationary impacts. The correct answer is False.
Step-by-step explanation:
The statement that Kaizen budgeting allows for budgeting of small incremental increases in costs each budgeting period to allow for the effects of normal inflation is FALSE. Kaizen budgeting is actually a cost-reduction approach that involves continuous, incremental improvements in the budgeting process. Rather than simply adjusting for inflation, Kaizen budgeting focuses on activities that continually improve efficiency and reduce waste, which could lead to stable or even reduced costs over time. It aligns with strategic objectives by promoting efficiency and has the potential to counter the effects of inflation by increasing productivity.
When considering inflation and its impacts, it is crucial to recognize how it can affect the cost of living and distort long-term planning. High and variable inflation can create an environment where markets adjust erratically, leading to surpluses and shortages. Thus, they present challenges in the realm of budgeting and economic forecasting. Therefore, despite the pressures of inflation, the philosophy of Kaizen budgeting is not to accept these increases passively but rather to find ways within the organization to absorb, reduce, or negate the impacts of inflation through continuous improvement strategies. Therefore, The correct answer is False.