Chapter P, Problem P.20Q

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 boss’s estimate of future sales?
4. Assume the company uses its sales budget for only one purpose—motivating employees 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.