since rood enterprises inaugurated participative budgeting 10 years ago everyone in 544722

Budgeting Procedures

Since Rood Enterprises inaugurated participative budgeting 10 years ago, everyone in the organization—from maintenance personnel to the president’s staff—has had a voice in the budgeting process. Until recently, participative budgeting has worked in the best interests of the company as a whole. Now, however, it is becoming evident that some managers are using the practice solely to benefit their own divisions. The budget committee has therefore asked you, the company’s controller, to analyze this year’s divisional budgets carefully before incorporating them into the company’s master budget.

The Motor Division was the first of the company’s six divisions to submit its budget request for next year. The division’s budgeted income statement appears at the top of the next page.

*Less expensive merchandise will be purchased in the next year to boost profits. †Depreciation is increased because additional equipment must be bought to handle increased sales.

1. Recast the Motor Division’s budgeted income statement in the following format (round percentages to two places):

1.Actual results for this year revealed the following information about revenues and cost of goods sold:

On the basis of this information and your analysis in 1, what do you think the budget committee should say to the managers of the Motor Division? Identify any specific areas of the budget that may need to be revised, and explain why the revision is needed.