Scribd
Upload
2K views1 page

Budgeting Case Study

Springfield Corporation begins its annual budgeting process in late August when the president establishes sales and profit targets. The marketing manager formulates a sales budget by product line and establishes sales quotas, while also estimating marketing expenses. The executive vice president uses this information to determine amounts for manufacturing and corporate expenses. The production manager then works with factory managers to develop a manufacturing plan within the given constraints, but production often considers the allocated funds inadequate, leading to negotiations. The final budgets modestly increase manufacturing funds while cutting others. However, none of the areas have met their budgets in recent years due to actual sales falling below targets and inability to sufficiently cut costs when sales are lower than planned. A consultant concluded Springfield's budgets were reasonable given planned

Uploaded by

kisschotu
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
2K views1 page

Budgeting Case Study

Springfield Corporation begins its annual budgeting process in late August when the president establishes sales and profit targets. The marketing manager formulates a sales budget by product line and establishes sales quotas, while also estimating marketing expenses. The executive vice president uses this information to determine amounts for manufacturing and corporate expenses. The production manager then works with factory managers to develop a manufacturing plan within the given constraints, but production often considers the allocated funds inadequate, leading to negotiations. The final budgets modestly increase manufacturing funds while cutting others. However, none of the areas have met their budgets in recent years due to actual sales falling below targets and inability to sufficiently cut costs when sales are lower than planned. A consultant concluded Springfield's budgets were reasonable given planned

Uploaded by

kisschotu
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

Evaluating a Company’s Budget Procedures

Springfield Corporation operates on a calendar-year basis. It begins the annual budgeting


process in late August, when the president establishes targets for the total dollar sales and
the net income before taxes for the next year.
The sales target is given to the Marketing Department, where the marketing
manager formulates a sales budget by product line in both units and dollars. From this
budget, sales quotas by product line in units and dollars are established for each of the
corporation’s sales districts.
The marketing manager also estimates the cost of the marketing activities
required to support the target sales volume and prepares a tentative marketing expense
budget.
The executive vice president uses the sales and profit targets, the sales budget by
product line, and the tentative marketing expense budget to determine the dollar amount
that can be devoted to manufacturing and corporate expenses, and then forwards to the
Production Department the product-line sales budget in units and the total dollar amount
that can be devoted to manufacturing.
The production manager meets with the factory managers to develop a
manufacturing plan that will produce the required units when needed within the cost
constraints set by the executive vice president. The budgeting process usually comes to a
halt at this point because the Production Department does not consider the financial
resources allocated to be adequate.
When this standstill occurs, the vice president of finance, the executive vice
president, the marketing manager, and the production manager meet to determine the
final budgets for each of the areas. This normally results in a modest increase in the total
amount available for manufacturing costs, while the marketing expense and corporate
office expense budgets are cut. The total sales and net income figures proposed by the
president are seldom changed. Although the participants are seldom pleased with the
compromise, these budgets are final. Each executive then develops a new detailed
budget for the operations in his or her area.
None of the areas has achieved its budget in recent years. Sales often run below
the target. When budgeted sales are not achieved, each area is expected to cut costs so
that the president’s profit target can still be met. However, the profit target is seldom met
because costs are not cut enough. In fact, costs often run above the original budget in all
functional areas. The president is disturbed that Springfield has not been able to meet the
sales and profit targets. He hired a consultant with considerable experience with
companies in Springfield’s industry. The consultant reviewed the budgets for the past
four years. He concluded that the product-line sales budgets were reasonable and that the
cost and expense budgets were adequate for the budgeted sales and production levels.

You might also like