29 Jun Question Budgeting Procedures
Question
Budgeting Procedures
C 4. Since Rood Enterprises inaugurated participative budgeting 10 years ago, everyone in theorganization—from maintenance personnel to the president’s staff—has had a voice in thebudgeting process. Until recently, participative budgeting has worked in the best interests of thecompany as a whole. Now, how-ever, it is becoming evident that some managers are using thepractice solely to benefit their own divisions. The budget committee has therefore asked you, thecompany’s controller, to analyze this year’s divisional budgets carefully before incorporatingthem into the company’s master budget. The Motor Division was the first of the company’s sixdivisions to submit its budget request for next year.
1. Recast the Motor Division’s budgeted income statement in the following format (roundpercentages to two places):
Budget for This Year
Budget for Next Year
Account Amount Percentage of Net Sales
Amount Percentage of Net Sales
2. Actual results for this year revealed the following information about revenues and costof goods sold:
Net sales
Radios
Appliances
Telephones
Net Sales
Less cost of goods sold
Gross margin
Amount
$780000
640000
280,000
75,000
1,775,000
1,775,000
1,011,575
Percentage of Net Sales
43.94
36.06
15.77
4.23
100.00
43.01
56.99
On the basis of this information and your analysis in 1 , what do you think the budget committeeshould say to the managers of the Motor Division? Identify any specific areas of the budget thatmay need to be revised, and explain why the revision is needed.
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