Task: Budgeting behavioral implications
Crunch numbers is a manufacturer of calculators In the budget setting process, budget A was put together by lower and middle management. Budget B was put together by senior management.
|
A |
B |
| Unit sales |
20,000 |
30,000 |
| dollar sales |
$600,000 |
$900,000 |
| less variable expenses: |
|
|
| direct materials |
260,000 |
360,000 |
| direct labor |
40,000 |
60,000 |
| variable overhead |
60,000 |
75,000 |
| variable selling and administrative expense |
60,000 |
60,000 |
| total variable expenses |
420,000 |
555,000 |
| Contribution margin |
180,000 |
345,000 |
| less fixed expenses |
|
|
| manufacturing |
$60,000 |
$50,000 |
| selling and administrative |
100,000 |
80,000 |
| taxes and interest |
10,000 |
10,000 |
| total fixed expenses |
$170,000 |
$140,000 |
| Net income (loss) |
10,000 |
205,000 |
A. Calculate the cost per unit for the variable costs.
B. why do you think budget A has high costs and low sales forecasts?
C. why do you think budget B has low costs and high sales forecasts? What are the behavioral implications of this top-down approach?
D. How should the two groups participate to come to a consensus on the budget? What are the advantages of this approach?