Problem:
"Digital Numbers is a manufacturer of calculators. In the budget process, budget A was put together by lower and middle management. Budget B was put together by senior management.
Q1. Calculate the cost per unit for the variable cost.
Q2. Why do you think budget A has high costs and low sales forecasts?
Q3. Why do you think budget B has low costs and high sales forecasts?
(What are the behavioral implications of top-down approach? Implications of top-down approach and is senior management is not knowledgeable about the day to day operations.
Q4. How should the two groups participate to come to a consensus on the budget? What are the advantages of this approach?
|
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 & admin expense |
60,000 |
60,000 |
| Total variable expenses |
$420,000 |
$555,000 |
| |
|
|
| Contribution margin |
$180,000 |
$345,000 |