Order ID | 53563633773 |
Type | Essay |
Writer Level | Masters |
Style | APA |
Sources/References | 4 |
Perfect Number of Pages to Order | 5-10 Pages |
Budgetary Process for Planning, Control, And Motivation
Chapter 9 Financial Planning and Analysis: The Master Budget 423
fees and heavy court usage. However, cash receipts are not as large in the spring and drop significantly
in the summer months.
CRC is considering changing its membership and fee structure in an attempt to change its cash
receipts. Under the new membership plan, only an annual membership fee would be charged, rather than
a membership fee plus hourly court fee. There would be two classes of membership as follows:
The annual fee would be collected in advance at the time the membership application is completed.
Members would be allowed to use the racquetball courts as often as they wish during the year under the
new plan.
All future memberships would be sold under these new terms. Current memberships would be
honored on the old basis until they expire. However, a special promotional campaign would be insti-
tuted to attract new members and to encourage current members to convert to the new membership plan
immediately.
The annual fees for individual and family memberships would be reduced to $200 and $300,
respectively, during the two-month promotional campaign. In addition, all memberships sold or renewed
during this period would be for 15 months rather than the normal one-year period. Current members
also would be given a credit toward the annual fee for the unexpired portion of their membership fee, and
for all prepaid hourly court fees for league play that have not yet been used.
CRC’s management estimates that 60 to 70 percent of the present membership would continue with
the club. The most active members (45 percent of the present membership) would convert immediately
to the new plan, while the remaining members who continue would wait until their current memberships
expire. Those members who would not continue are not considered active (i.e., they play five or less
times during the year). Management estimates that the loss of members would be offset fully by new
members within six months of instituting the new plan. Furthermore, many of the new members would
be individuals who would play during nonprime time. Management estimates that adequate court time
will be available for all members under the new plan.
If the new membership plan is adopted, it would be instituted on February 1, well before the sum-
mer season. The special promotional campaign would be conducted during March and April. Once the
plan is implemented, annual renewal of memberships and payment of fees would take place as each
individual or family membership expires.
Required: Your consulting firm has been hired to help CRC evaluate its new fee structure. Write a
letter to the club’s president answering the following questions.
(CMA, adapted)
Patricia Eklund, controller in the division of social services for the state, recognizes the importance of
the budgetary process for planning, control, and motivational purposes. She believes that a properly
implemented participative budgetary process for planning purposes and an evaluation procedure will
motivate the managers to improve productivity within their particular departments. Based upon this
philosophy, Eklund has implemented the following budgetary procedures.
An appropriation target figure is given to each department manager. This amount is the maximum
funding that each department can expect to receive in the next year.
Department managers develop their individual budgets within the following spending constraints as
directed by the controller’s staff.
◦ Expenditure requests cannot exceed the appropriation target.
� Case 9–46 Participative Budgeting
(LO 9-2, 9-3, 9-9)
Individual ……………………………………………………………………………………………… $250
Family ………………………………………………………………………………………………….. 400
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424 Chapter 9 Financial Planning and Analysis: The Master Budget
◦ All fixed expenditures should be included in the budget. Fixed expenditures would include
such items as contracts and salaries at current levels.
◦ All government projects directed by higher authority should be included in the budget in
their entirety.
The controller’s staff consolidates the budget requests from the various departments into a master
budget submission for the entire division.
Upon final budget approval by the legislature, the controller’s staff allocates the appropriation to
the various departments on instructions from the division manager. However, a specified percent-
age of each department’s appropriation is held back in anticipation of potential budget cuts and
special funding needs. The amount and use of this contingency fund is left to the discretion of the
division manager.
Each department is allowed to adjust its budget when necessary to operate within the reduced
appropriation level. However, as stated in the original directive, specific projects authorized by
higher authority must remain intact.
The final budget is used as the basis of control. Excessive expenditures by account for each depart-
ment are highlighted on a monthly basis. Department managers are expected to account for all
expenditures over budget. Fiscal responsibility is an important factor in the overall performance
evaluation of department managers.
Eklund believes her policy of allowing the department managers to participate in the budgetary
process and then holding them accountable for their performance is essential, especially during times
of limited resources. She further believes that the department managers will be positively motivated to
increase the efficiency and effectiveness of their departments because they have provided input into the
initial budgetary process and are required to justify any unfavorable performances.
Required:
(CMA, adapted)
Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior
staff. It was November of 20×0, and the group was discussing preparation of the firm’s master budget for
20×1. “I’ve decided to go ahead and purchase the industrial robot we’ve been talking about. We’ll make
the acquisition on January 2 of next year, and I expect it will take most of the year to train the personnel
and reorganize the production process to take full advantage of the new equipment.”
In response to a question about financing the acquisition, Vaughn replied as follows: “The robot
will cost $1,000,000. We’ll finance it with a one-year $1,000,000 loan from Shark Bank and Trust Com-
pany. I’ve negotiated a repayment schedule of four equal installments on the last day of each quarter. The
interest rate will be 10 percent, and interest payments will be quarterly as well.” With that the meeting
broke up, and the budget process was on.
Frame-It Company is a manufacturer of metal picture frames. The firm’s two product lines are des-
ignated as S (small frames, 5×7 inches) and L (large frames, 8×10 inches). The primary raw materials
are flexible metal strips and 9-inch by 24-inch glass sheets. Each S frame requires a 2-foot metal strip;
an L frame requires a 3-foot strip. Allowing for normal breakage and scrap glass, Frame-It can get either
four S frames or two L frames out of a glass sheet. Other raw materials, such as cardboard backing, are
insignificant in cost and are treated as indirect materials. Emily Jackson, Frame-It’s controller, is in
charge of preparing the master budget for 20×1. She has gathered the following information:
units each quarter over the previous quarter. For example, S frame sales in the first quarter of 20×1
are expected to be 55,000 units.
collected during the quarter in which the sale is made, while the remaining 20 percent is collected
in the following quarter. (For simplicity, assume the company is able to collect 100 percent of its
accounts receivable.)
� Case 9–47 Comprehensive Master
Budget; Short-Term Financ-
ing; Acquisition of Robotic
Equipment
(LO 9-2, 9-3, 9-5, 9-6)
year: $5,650,000
frames, units to be produced,
entire year: 254,000
$3,850,000
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