Evaluating a Company’s Budget Procedures Essay

capital of Illinois Corporation operates on a calendar-year basis. It begins the annual work outing process in late August, when the president establishes targets for the gist clam gross revenue and the net income before taxes for the next year.The gross revenue target is accustomed to the Marketing Department, where the trade passenger vehicle formulates a sales budget by harvest line in both units and dollars. From this budget, sales quotas by product line in units and dollars be established for each of the corporations sales districts.The marketing manager also estimates the cost of the marketing activities require to support the target sales volume and prepares a tentative marketing expense budget. The administrator 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 asshole be devoted to manufacturing and bodied 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 intersection manager meets with the factory managers to develop a manufacturing plan that will stick the required units when needed within the cost constraints set by the exe get alongive vice president. The budgeting process usually comes to a halt at this foreland because the Production Department does not consider the financial resources allocated to be adequate.When this cul 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, go 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 comp romise, these budgets are final. Each executive then develops a new detailed budget for the operations in his or her area. no(prenominal) of the areas has achieved its budget in recent years. Sales often run under the target. When budgeted sales are not achieved, each area is expected to cut costs so that the presidents 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 wild that Springfield has not been able to meet the sales and profit targets. He hired a consultant with considerable experience with companies in Springfields 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.