Task:
Describe your question and rBudget and Behavior Implications
An effective budget converts the goal and objectives of management into specific performance targets. The master budget serves as a blueprint that reflect management's plan for the budgeted period . Moreover the master budget serves as a basis for control in that performance can be evaluated by competing actual results to budgeted or planned results.
Given the importance of budgeting with in a company , the creation of a effective budget is essential for the succeed operation of the company. There are several methods of generating budget information that can be employed , all of which require extensive contact with people ar various operating level within the company . The way in whixh people see their involvement with the budget process is important to the successful use of the budgetas a management tool .
In the budget setting process, budget A was putting together by lower management, including sales representatives , purchasing managers, and factory supervisors, budget B was put together by senior management.
A B
Unit sales 10.000 15,000
Dollar sales $ 2,000,000 $3,000,000
Less variable expenses
Direct material $1,100,000 $1,500,000
Direct Labor 220,000 300,000
Variable Overhead 110,000 150,000
Variable selling administrative expense 88,000 120,000
Total Variable expenses $1,518,000 $2,070,000
Contribution margin
Less fixes expense:
Manufacturing overhead 350,000 300,000
Selling and Administration 200,000 $200,000
Taxes and interest 10,000 10,000
Total fixed expenses $ 560,000 $ 510,000
Net income (loss) $ 78,000 $ 420,000
Required
A. Calulate the cost per unit for the variable cost
B. Why do you think budget A has a high cost and low sale forecast?
C. Why do you think budget B has low cost and hign sales forecast? What are the behavior implication of this top down approach?
D. How should the two groups participate to come to a consensus or the budget? What are the advantages of this approach?