Evaluating a Company’s Budget Procedures Essay

capital of Illinois Corporation operates on a calendar-year basis. It begins the annual ciphering process in late August, when the electric chair establishes sends for the total dollar gross revenue and the interlocking income before taxes for the next year.The gross revenue bottom is given to the Marketing Department, where the trade director formulates a gross gross sales calculate by product gunstock in both(prenominal) units and dollars. From this budget, sales quotas by product line in units and dollars be established for each(prenominal) of the corporations sales districts.The selling theatre director also estimates the cost of the market activities required to support the target sales volume and prep bes a tentative marketing expense budget. The executive evil chairperson uses the sales and returns targets, the sales budget by product line, and the tentative marketing expense budget to peg down the dollar amount that preserve be given up to manufactu ring and corporate expenses, and consequently forwards to the doing 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 protrude that will produce the required units when undeniable within the cost constraints set by the executive vice president. The budgeting process unremarkably comes to a halt at this come out because the Production Department does not recollect 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 res publicas. This normally results in a modest increase in the total amount available for manufacturing cost, magic spell the marketing expense and corporate location expense budgets are cut. The total sales and net income figures pr oposed by the president are seldom changed. Although the participants are seldom cheering 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 presidents lucre 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 superior budget in all functional areas. The president is disturbed that capital of Illinois 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 bonny and that the cost and expense budgets were adequate for the budgeted sal es and production levels.