David works for Woolgarments Company as a production manager. He often participates in the annual budgeting process of the company. David is requested by the Chief Executive Officer Linda to submit his department’s budgeted production for the following year. Linda reviews and typically adds 10 percent to the production budget provided by David. The new amount becomes David’s target production level for the following year. David can receive a cash bonus if his department exceeds the projected production level. Required: a. Explain any incentive that David might have to be dishonest with Linda about the production level he thinks the department can achieve. b. Suggest what should be done to prevent a manager from providing inaccurate budgets which can easily achieved.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
David works for Woolgarments Company as a production manager. He often participates in the annual budgeting process of the company. David is requested by the Chief Executive Officer Linda to submit his department’s budgeted production for the following year. Linda reviews and typically adds 10 percent to the production budget provided by David. The new amount becomes David’s target production level for the following year. David can receive a cash bonus if his department exceeds the projected production level.
Required:
a. Explain any incentive that David might have to be dishonest with Linda about the production level he thinks the department can achieve.
b. Suggest what should be done to prevent a manager from providing inaccurate budgets which can easily achieved.
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