Fit-For-Life Foods Inc., a manufacturer of breakfast cereals and snack bars, has experienced several years of steady growth in sales, profits and dividends while maintaining a relatively low level of debet. The boards of directors has adopted a long-run strategy to maximize the value of the shareholders investment. In order to achieve this goal, the board of directors established the following five-year financial objectives. Increase sales by 12 percent per year Increase income before taxes by percent per year Maintain long-term debt at maximum of 16 percent of assets. These financial objectives has been attained for the past three years. At the beginning of last year, the president of Fit-for-Life Foods, Andrea Donis, added a fouth financial objectives of maintaining cost of goods sold at a maximum of 70 percent of sales. This goal also was attained last year. The Company’s budgeting process is to directed toward attaining these goals for the forthcoming year, a difficult task with the economy in a prolonged recession. In addition, the increased emphasis on eating healthful foods has driven up the price of ingredients used by the company significantly faster than the expected rate of inflation. John Wislow, cost accountant at Fit-for-Life Foods, has responsibility for preparation on the profit plan for next year. Winslow assured Donis that he could overestimate the ending inventory and reclassify fruit and grain inspection costs as administrative rathet than production costs to attain the desired objective. The actual statements for 20x4 and the budgeted statements for 20x5 that Winslow prepared are as follows : Required : Describe the role of budgeting in a firm’s strategic planning. For each of the financial objectives established by the board of directors and the president of Fit-for-Life Foods Inc. Determine whether John Wislows’s budget attains these objectives. Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer. Objective Attained/Not Attained Calculations 3. Explain the adjustments comremplated by John Winslow are unethical, citing specific standard of ethical conduct for management accountants.
Fit-For-Life Foods Inc., a manufacturer of breakfast cereals and snack bars, has experienced several years of steady growth in sales, profits and dividends while maintaining a relatively low level of debet. The boards of directors has adopted a long-run strategy to maximize the value of the shareholders investment. In order to achieve this goal, the board of directors established the following five-year financial objectives.
- Increase sales by 12 percent per year
- Increase income before taxes by percent per year
- Maintain long-term debt at maximum of 16 percent of assets.
These financial objectives has been attained for the past three years. At the beginning of last year, the president of Fit-for-Life Foods, Andrea Donis, added a fouth financial objectives of maintaining cost of goods sold at a maximum of 70 percent of sales. This goal also was attained last year.
The Company’s budgeting process is to directed toward attaining these goals for the forthcoming year, a difficult task with the economy in a prolonged recession. In addition, the increased emphasis on eating healthful foods has driven up the price of ingredients used by the company significantly faster than the expected rate of inflation.
John Wislow, cost accountant at Fit-for-Life Foods, has responsibility for preparation on the profit plan for next year. Winslow assured Donis that he could overestimate the ending inventory and reclassify fruit and grain inspection costs as administrative rathet than production costs to attain the desired objective. The actual statements for 20x4 and the budgeted statements for 20x5 that Winslow prepared are as follows :
Required :
- Describe the role of budgeting in a firm’s strategic planning.
- For each of the financial objectives established by the board of directors and the president of Fit-for-Life Foods Inc. Determine whether John Wislows’s budget attains these objectives. Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer.
Objective Attained/Not Attained Calculations
3. Explain the adjustments comremplated by John Winslow are unethical, citing specific standard of ethical conduct for
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