C 4. Since Rood Enterprises inaugurated participative budgeting 10 years ago

Budgeting Procedures
C 4. 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, how-ever, 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.

1. Recast the Motor Division’s budgeted income statement in the following format (round percentages to two places):
Budget for This Year
Budget for Next Year
Account Amount Percentage of Net Sales
Amount Percentage of Net Sales
2. Actual results for this year revealed the following information about revenues and cost of goods sold:
Net sales
Radios
Appliances
Telephones
Net Sales
Less cost of goods sold
Gross margin

Amount
$780000
640000
280,000
75,000
1,775,000
1,775,000
1,011,575

Percentage of Net Sales
43.94
36.06
15.77
4.23
100.00
43.01
56.99

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.