Chapter P, Problem 1E

Planning and Control
Many companies use budgets for three purposes. First, they use them to plan how to deploy resources to best serve customers. Second, they use them to establish challenging goals, or stretch targets, to motivate employees to strive for exceptional results. Third, they use them to evaluate and reward employees.
Assume that you are a sales manager working with your boss to create a sales budget for next year. Once the sales budget is established, it will influence how other departments within the company plan to deploy their resources. For example, the manufacturing manager will plan to produce enough units to meet budgeted unit sales. The sales budget will also be instrumental in determining your pay raise, potential for promotion, and bonus. If actual sales exceed the sales budget, it bodes well for your career. If actual sales are less than budgeted sales, it will diminish your financial compensation and potential for promotion.
Required:
1. Do you think it would be appropriate for your boss to establish the sales budget without any input from you? Why?
2. Do you think the company would be comfortable with allowing you to establish the sales budget without any input from your boss? Why?
3. Assume the company uses its sales budget for only one purpose-planning to deploy resources in a manner that best serves customers. What thoughts would influence your estimate of future sales as well as your bass's estimate of future sales?
4. Assume the company uses its sales budget for only one purpose-motivating employee’s to strive for exceptional results. What thoughts would influence your estimate of future sales as well as your boss's estimate of future sales?
5. Assume the company uses its sales budget for only one purpose-to determine your pay raise, potential for promotion, and bonus. What thoughts would influence your estimate of future sales as well as your boss's estimate of future sales?
6. Assume the sales budget is used for all three purposes described in questions 3-5. Describe any conflicts or complications that might arise when using the sales budget for these three purposes.

To determine

Budget: Budget is the statement of estimated revenue and expenses for the particular period of time. It is used in organization for planning the activities which are required to achieve the goal of the organization. The business prepares sales budget, purchase budget production budget, cash budget, and various other budgets.

Sales budget: Sales budget shows the estimation of sales in a particular year. It includes the estimated sales unit that company expects to sales. It is prepared for the upcoming year on the basis of sales data of previous year. It is also called principle budget because the preparation of another budget of the organization depends upon sales budget. It is the basis for planning for future sales of the company.

The establishment of the sales budget without taking any input from the sales manager.

Answer to Problem 1E

Solution:

The sales manager is someone who is responsible to solve all the issues related to the sales department of the organization. Sales manager holds all the responsibility regarding management of sale, guiding sales employees, managing all the resources for sales.

The sales budget is prepared on the basis of information regarding sales of the organization. To prepare sales budget boss should take all the information regarding sales. Due to this, it will not be appropriate for a boss to establish sales budget without any input from the sales manager.

Explanation of Solution

• The sales manager is totally responsible for the preparation of sales budget of the business.
• The boss has to collect all information regarding sales of the organization from the sale manager.
• The boss should take complete historical data regarding the sale of the company and check past records prepared by the sales manager while establishing sales budget.

Conclusion

Therefore, it will not be appropriate for the boss to establish sales budget without taking any input from the sales manager.

To determine

Budget: Budget is the statement of estimated revenue and expenses for the particular period of time. It is used in organization for planning the activities which are required to achieve the goal of the organization. The business prepares sales budget, purchase budget production budget, cash budget, and various other budgets.

Sales budget: Sales budget shows the estimation of sales in a particular year. It includes the estimated sales unit that company expects to sales. It is prepared for the upcoming year on the basis of sales data of previous year. It is also called principle budget because the preparation of another budget of the organization depends upon sales budget. It is the basis for planning for future sales of the company.

The authority from company establishing sales budget without taking any input from the boss.

Answer to Problem 1E

Solution:

• The sales budget is prepared totally on the basis of information provided by the sales manager. The information regarding past year sales of the company, sales employees performance, sales distribution channel established by the company and other information related sales department will be obtained from the sales manager.
• The sales manager would take input regarding the estimated profits which are the expectations of the boss. Accordingly, sales value will be estimated and sales budget will be prepared.
• So it can be said that the company will allow the sales manager to establish a budget by taking the input regarding targeted profit and sales expected by the boss.

Explanation of Solution

• As it is clear that company prepare sales budget on the basis of information regarding sales. The preparation of sales budget is the sole responsibility of the sales manager. Thus it can be prepared by sales manager by taking the input regarding targeted profit and sales expected by the boss.
• The boss can see the review the sales budget to compare expected and actual results.

Conclusion

Therefore it can be said company cannot allow preparation of sales budget without taking input from the boss.

To determine

Budget: Budget is the statement of estimated revenue and expenses for the particular period of time. It is used in organization for planning the activities which are required to achieve the goal of the organization. The business prepares sales budget, purchase budget production budget, cash budget, and various other budgets.

Sales budget: Sales budget shows the estimation of sales in a particular year. It includes the estimated sales unit that company expects to sales. It is prepared for the upcoming year on the basis of sales data of previous year. It is also called principle budget because the preparation of another budget of the organization depends upon sales budget. It is the basis for planning for future sales of the company

The thought that would influence the estimate of future sales of sales manager and boss if the company only uses its sales budget for planning to deploy resources in that manner that best serves customers only.

Answer to Problem 1E

Solution:

• For serving the customer in the best way, the company should be able to meet the demand of customer in time, the products should be delivered in time, the company should provide after-sales services and other services that help to build relationships with customers.
• Due to this, the sales manager has to prepare a plan for optimum utilization of resources of the company. The sales manager should deploy efficient sales employees which help to increase the level of production of the company by utilizing resources in a proper way. The sales manager should be focused on maintaining the proper quantity of product along with quality that would satisfy the customer and the company would be able to achieve the estimated sales.
• When a company only uses sales budget for planning to deploy resources in a manner that best serves the customer the boss should make sure whether all the resources of the organization are utilized in the optimum best way for achieving expected sales.

Explanation of Solution

• The sales manager would make a decision regarding proper distribution channel for delivering the product in right time and right quality in order to satisfy the customer and achieve estimated sales.
• The boss of the company should make sure the resources are properly supplied to the sales department of the company so that company would properly utilize resources to meet the demand of customer in the best possible way.

Conclusion

Therefore, if the company only uses the sales budget for planning to deploy resources in a manner that best serves the customer the sales manager and boss thoughts mentioned above would influence the future estimated sales.

To determine

Budget: Budget is the statement of estimated revenue and expenses for the particular period of time. It is used in organization for planning the activities which are required to achieve the goal of the organization. The business prepares sales budget, purchase budget production budget, cash budget, and various other budgets.

Sales budget: Sales budget shows the estimation of sales in a particular year. It includes the estimated sales unit that company expects to sales. It is prepared for the upcoming year on the basis of sales data of previous year. It is also called principle budget because the preparation of another budget of the organization depends upon sales budget. It is the basis for planning for future sales of the company.

The thought that would influence estimation made regarding the future sale by sales manager and boss if a company uses the sales budget for only motivating employees to strive for an exceptional result.

Answer to Problem 1E

Solution:

• The boss of the company should provide a sound environment where employees are appreciated for the efforts and not pressurized for meeting unwanted deadlines. If a company becomes able to maintain such environment the company the employees would be fully focused on required estimated unit and company would be able to achieve estimated future sales. The boss of the company will be focused on creating a sound environment so that employees will strive for exceptional results.
• The sales manager should motivate the employees to strive for the exceptional results by giving various benefits like incentives, bonus to sales employees to increase the level of sales of the company.

Explanation of Solution

• The motivated employees perform in a better way and strive for exceptional results. So the focus of both sales manager and boss should be on motivating the employees through a different manner. The motivation may be monetary or non-monetary.
• Sales manager and boss should prepare different plans to give a best possible environment where employees give their total efforts to achieve targeted sales of the company.

Conclusion

Therefore, the boss and manager would give respective efforts to motivate their employees in order to active estimated sales if the company will use sales ledger only for motivating employees.

To determine

Budget: Budget is the statement of estimated revenue and expenses for the particular period of time. It is used in organization for planning the activities which are required to achieve the goal of the organization. The business prepares sales budget, purchase budget production budget, cash budget, and various other budgets.

Sales budget: Sales budget shows the estimation of sales in a particular year. It includes the estimated sales unit that company expects to sales. It is prepared for the upcoming year on the basis of sales data of previous year. It is also called principle budget because the preparation of another budget of the organization depends upon sales budget. It is the basis for planning for future sales of the company

The thoughts that would influence the estimate of future sales made by sales manager and boss regarding future sales if the company only uses its sales for only one purpose.

Answer to Problem 1E

Solution:

• The pay raise, promotion, and bonus of sales manager depend upon the performance of sales manager. If the sales manager is able to achieve more sales than expected sales it will be beneficial for the sales manager and boost the career of sales manager. The sales manager makes a proper plan for the increasing sales unit and achieves estimated sales.
• If a company uses sales budget only for determining the pay raise, potential for promotion and bonus of sales manager, the boss will focus on motivating the sales manager through all their rewards and promotion to achieve estimated units. The main focus of boss will be on the sales manager.

Explanation of Solution

• When a company uses the sale budget only to determine the pay raise, potential for promotion and bonus, the efforts from the sales manager will increase to raise sales level to gain all benefits and reward and it will help to achieve estimated sales.
• Similarly boss will make efforts from his side for increasing sale to achieve expected units by increasing pay, giving promotion and bonus to sales manager.

Conclusion

Therefore, the sales manager and boss estimation regarding future sales will be influenced by above-mentioned thoughts if sales budget is used only for determining pay raise, the potential for promotion and bonus of sales manager.

To determine

Budget: Budget is the statement of estimated revenue and expenses for the particular period of time. It is used in organization for planning the activities which are required to achieve the goal of the organization. The business prepares sales budget, purchase budget production budget, cash budget, and various other budgets.

Sales budget: Sales budget shows the estimation of sales in a particular year. It includes the estimated sales unit that company expects to sales. It is prepared for the upcoming year on the basis of sales data of previous year. It is also called principle budget because the preparation of another budget of the organization depends upon sales budget. It is the basis for planning for future sales of the company.

The conflicts and complications that might arise when a company uses sales budget for deploying resources in that manner that best serves the customer, motivating employees, to determine pay raise, potential promotion, and bonus.

Answer to Problem 1E

Solution:

When sales budget is used for three purposes the complication are as follows

• The company may not be able to meet the requirement of the customer because it is not always possible to supply right quantity with right quality in right time.
• It is not easy to motivate the employees to strive for exceptional results. The sales manager should have good relation with every employee of the company so that employees could take sales manager words seriously.
• Similarly, the company will not be always able to raise the pay, give promotion and bonus to sales manager to motivate sales manager to achieve estimated sales.

Explanation of Solution

• The employees would feel pressurized for meeting target even if receiving incentive due to work loads.
• The sales manager will not be successful to motivate employees for achieving estimated sales because it is hard for the sales manager to keep every employee satisfied.
• There may be a shortage of some resources in the company which will make hurdle in selling estimated units. The distribution channel of the company may not so strong for delivering product in time.

Conclusion

Therefore, if a company uses sales budget for deploying resources in that manner that best serves the customer, motivating employees, to determine pay raise, the potential for promotion and bonus above mentioned conflict and complication might arise.