SURVEY OF ACCOUNTING-ACCESS
4th Edition
ISBN: 9780077631536
Author: Thomas Edmonds
Publisher: McGraw-Hill Education
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Chapter 14, Problem 8Q
8. Ken Shilov, manager of the marketing department, tells you that “budgeting simply does not work.” He says that he made budgets for his employees and when he reprimanded them for failing to accomplish budget goals, he got unfounded excuses. Suggest how
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Both the budget process and budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies is for management to spend any amounts remaining in a budget at the end of the budget period, a practice often called "use it or lose it." The view is that if a department manager does not spend the budgeted amount, top management will reduce next year's budget by the amount not spent. To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services. All of us pay for the costs associated with this budget system.
Required
Please respond by offering a solution to a not-for-profit that utilizes the "use it or lose it" budgeting problem.
The budget process and budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies is for management to spend any amounts remaining in a budget at the end of the budget period, a practice often called “use it or lose it.” The view is that if a department manager does not spend the budgeted amount, top management will reduce next year’s budget by the amount not spent. To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services. All of us pay for the costs associated with this budget system. Required Write a half-page report to a local not-for-profit organization or government agency offering a solution to the “use it or lose it” budgeting problem.
Criticize the following quotation:“At our company, budgeted revenue is set so high andbudgeted expenses so low that no department can ever meetthe budget. This way, department managers can never relax;they are motivated to keep working harder no matter howwell they are already doing.”
Chapter 14 Solutions
SURVEY OF ACCOUNTING-ACCESS
Ch. 14 - Prob. 1QCh. 14 - Prob. 2QCh. 14 - 3.What are the three levels of planning? Explain...Ch. 14 - 4.What is the primary factor that distinguishes...Ch. 14 - 5.What is the advantage of using a perpetual...Ch. 14 - Prob. 6QCh. 14 - Prob. 7QCh. 14 - 8. Ken Shilov, manager of the marketing...Ch. 14 - Prob. 9QCh. 14 - 10.What is the normal starting point in developing...
Ch. 14 - 11. How does the level of inventory affect the...Ch. 14 - 12.What are the components of the cash budget?...Ch. 14 - 13.The primary reason for preparing a cash budget...Ch. 14 - 14.What information does the pro forma income...Ch. 14 - 15.How does the pro forma statement of cash flows...Ch. 14 - Prob. 1ECh. 14 - Prob. 2ECh. 14 - Prob. 3ECh. 14 - Prob. 4ECh. 14 - Prob. 5ECh. 14 - Prob. 6ECh. 14 - Prob. 7ECh. 14 - Prob. 8ECh. 14 - Prob. 9ECh. 14 - Prob. 10ECh. 14 - Prob. 11ECh. 14 - Prob. 12ECh. 14 - Preparing a cash budget
The accountant for Erica’s...Ch. 14 - Prob. 14ECh. 14 - Prob. 15ECh. 14 - Prob. 16PCh. 14 - Prob. 17PCh. 14 - Prob. 18PCh. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Prob. 21PCh. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 1ATCCh. 14 - Prob. 4ATCCh. 14 - Ethical Dilemma Bad budget system or unethical...
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- Pam Kelly says she has no faith in budgets. Her company, Kelly Manufacturing Corporation, spent thousands of dollars to install a sophisticated budget system. One year later the company's expenses are still out of control. She believes budgets simply do not work. How would you respond to Ms. Kelly's beliefs?arrow_forwardIs it important for a company to follow a strict budget even though they may be experiencing phenomenal profits? Do you think that there will be a bias towards greed when creating the budget for this company? Explain. How does management greed influence budget decisions? Please consider each of the questions separately in this post. It is important for you to understand the value of the budget as a blueprint for the business – even in times of exceptional “good news”. It is also important to consider the role of greed within the budgeting process of the firm. Perhaps you might want to think about the budget as a communication to employees about what ownership and management believes is its focus. You might even want to see if any other of the exceptional “bad boys” in the business world were reflecting their greed even within their budgeting documents.arrow_forwardThe director of marketing for Starr Computer Co., Megan Hewitt, had the following discussion with the company controller, Cam Morley, on July 26 of the current year: Megan: Cam, it looks like I’m going to spend much less than indicated on my July budget. Cam: I’m glad to hear it. Megan: Well, I’m not so sure it’s good news. I’m concerned that the president will see that I’m under budget and reduce my budget in the future. The only reason that I look good is that we’ve delayed an advertising campaign. Once the campaign hits in September, I’m sure my actual expenditures will go up. You see, we are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers. Cam: I don’t think that’s anything to worry about. We all expect some variation in actual spending month to month. What’s really important is staying within the budgeted targets for the year. Does that look as if it’s going to be a problem?…arrow_forward
- The director of marketing for Eclipse Computer co., Sandeep Sauda, had the following discussion with the company controller, Deon Johnson, on July 26 of the current year: Sandeep: Deon, it looks like I'm going to spend much less than indicated on my July budget. Deon: I'm glad to hear it. Sandeep: Well, I'm not so sure it's good news. I'm concerned that the president will see that I'm under budget and reduce my budget in the future. The only reason that I look good is that we've delayed an advertising campaign. Once the campaign hits in September, I'm sure my actual expenditures will go up. You see, we are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers. Deon: I don't think that's anything to worry about. We all expect some variation in actual spending month to month. What's really important is staying within the budgeted targets for the year. Does that look as if…arrow_forwardThe director of marketing for Starr Computer Co., Megan Hewitt, had the following discussion with the company controller, Cam Morley, on July 26 of this year: Megan: Cam, It looks like I am going to spend much less than indicated on my July budget. Cam: I'm glad to hear it. Megan: Well, I'm not so sure it's good news. I'm concerned that the president will see that I'm under budget and reduce my budget in the future. The only reason that I look good in that we've delayed an advertising campaign. Once the campaign hits in September, I'm sure my actual expenditures will go up. You see, we are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers. Cam: I don't think that's anything to worry about. We all expect some variation in actual spending month to month. What's really important is staying within the budgeted targets for the year. Does that look as if it's going to be a problem? Megan: I…arrow_forwardThe management of Hess, Inc., is developing a flexible budget for the upcoming year. It was not pleased with the small amount of net income the budget showed at all sales levels and Is contemplating using a less expensive material. This action reduces direct material cost by $1 per unit. What would be the effects on financial statements and a flexible budget if management takes this approach? Are there other factors that need to be considered?arrow_forward
- Which of the following is true in a bottom-up budgeting approach? Every expense needs to be justified. Supervisors tell departments their budget amount and the departments are free to work within those amounts. Departments budget their needs however they see fit. Departments determine their needs and relate them to the overall goals.arrow_forwardWestmont Corporation uses a comprehensive budgeting system for planning and control purposes. While departmental supervisors are happy with the system, the factory manager is not. A report for the company's Assembly Department for March follows: After receiving this report, the supervisor of the Assembly Department stated, "These reports are super. It makes me feel good to see how well things are going in my department. I can't understand why those people upstairs complain so much about the reports." For the last several years, the company's marketing department chronically failed to meet the sales goals expressed in the company's monthly budgets. Required: The company's president is uneasy about the cost reports, identify at least two reasons. What kind of reports should be used to give better insight into how well departmental supervisors are controlling costs? Complete the new performance report for the quarter, based on Flexible Budget Performance approach. Were costs well…arrow_forwardWhich of the following statements is incorrect concerning budget preparation? A. The rolling budget approach is not often used in practice because it requires that management be in perpetual budgeting mode. B. If a zero-based budgeting approach is used, the annual budgeting process begins with a review of the results of the prior operating period. C. If a participative approach is used to prepare budgets, all levels of management are involved in the budgeting process. D. The preparation of the sales budget is the starting point in the budgeting process for all companies. E. Participative budgeting increases the risk that employees will create budgetary slack.arrow_forward
- Which of the following statements about top down budgeting is true? Multiple Choice It is an appropriate method to use in times of financial stress. Eliminates a manager's excuse who tries to claim that his budget is unrealistic The budget process is often more efficient. It allows senior management to better prioritize resources to propelling the growth of the companyarrow_forwardThe executives at Stark Inc., a plumbing supply manufacturer, recently reviewed production capacity for the upcoming year and set production budgets. Based on the number of units that they expected to produce, they budgeted sales and set sales targets for each of their retail locations. They did not ask for the input of the individual store managers as they believed that they had sufficient information and they wanted to ensure that the store targets were not easily attainable. When the actual sales numbers started to come in, they were much lower than the budget. In investigating the variance, the company found that one location had a new competitor that had just opened down the street, and another had significant road construction that impeded the traffic flow and cut down on customers. There were also some new products on the market that were cutting into the company’s market share. Because of the missed sales budget, the company had overproduced, resulting in excess inventory.…arrow_forwardA budget is most likely to be effective if it is not used to evaluate a manager's performance. employees and managers at the lower levels do not get involved in the budgeting process. it is used to assess blame when things do not occur according to plans. it has top management support.arrow_forward
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