M. Gerry Naufal. R. G.

29123123 – YP69A

Planning, Control and Decision Making

Many companies use budgets for three purposes. First, they use them to plan how to
deploy resources to best serve customers. Second, they use them to establish challenging
goals, or stretch targets, to motivate employees to strive for exceptional results. Third, they use
them to evaluate and reward employees.
Assume that you are a sales manager working with your boss to create a sales budget
for next year. Once the sales budget is established, it will influence how other departments
within the company plan to deploy their resources. For example, the manufacturing manager will
plan to produce enough units to meet budgeted unit sales. The sales budget will also be
instrumental in determining your pay raise, potential for promotion, and bonus. If actual sales
exceed the sales budget, it bodes well for your career. If actual sales are less than budgeted
sales, it will diminish your financial compensation and potential for promotion.
Required:

1. Do you think it would be appropriate for your boss to establish the sales budget
without any input from you? Why?
It wouldn’t be appropriate because as sales managers, we know more about the situation in the
field because sales manager usually performance monitoring of sales representatives based on
overall economic conditions, the intensity of competition in the market, production capacity,
available funds, and so on. Then it is necessary to collaborate with each other's opinions
between the sales manager and his boss.
In other side, collaboration will gain valuable feedback on buyers' expectations,
disappointments, and desires.

2. Do you think the company would be comfortable with allowing you to establish the
sales budget without any input from your boss? Why?
Based on the information provided in the case and general management principles, it is unlikely
that the company would be comfortable with allowing a sales manager to establish the sales
budget without any input from their boss. Here's why:

● Accountability: Budgets are crucial financial tools that impact various aspects of a
company, including resource allocation, financial performance, and goal achievement.
Managers are typically held accountable for their budget performance. Allowing a
manager to set the budget unilaterally could lead to a lack of accountability, as there
would be no oversight or review of the budgeting process.
● Cross-Functional Impact: Budgets have cross-functional implications. They influence
not only the sales department but also other departments like manufacturing, finance,
and marketing. Input from various departments is necessary to ensure that the budget
 aligns with the overall goals and strategies of the company. Without input from different
stakeholders, the budget may lack the necessary coordination and alignment with the
broader organizational objectives.
● Risk Mitigation: Involving higher-level management or executives in the budgeting
process provides a system of checks and balances. It helps identify potential risks,
biases, or unrealistic targets in the budget. Having a more senior perspective can
mitigate these risks and ensure that the budget is both challenging and achievable.
● Strategic Alignment: Senior management typically has a broader perspective on the
company's strategic goals and market conditions. Their input is valuable in ensuring that
the sales budget aligns with the company's overall strategy and market realities. Without
their input, the budget may lack strategic alignment.
● Performance Evaluation: The budget serves as a basis for performance evaluation and
employee compensation, as mentioned in the case. If managers are solely responsible
for setting their budgets, there might be a conflict of interest in setting overly optimistic
targets to maximize their compensation. Input from higher management can provide an
objective perspective on setting realistic targets.

In summary, while sales managers may have expertise in their field, the collaborative input from
senior management or bosses is essential to ensure that the sales budget is realistic, aligned
with the company's strategy, and takes into account the broader organizational impact. This
collaborative approach helps enhance accountability, reduce risks, and foster a more
comprehensive understanding of the budgeting process.
3. Assume the sales budget is used for all three purposes. Describe any conflicts or
complications that might arise when using the sales budget for these three purposes.
Use the following table:

Conflicts or complications

Budgeting If the sales budget will prioritize planning to deploy resources that best
serves customers, then they may need to increase the budget in order to
provide the best service/product that will meet customers’ satisfaction, or
they may reduce other costs such as employee wages, this
then, will cause conflict from the employees.

Controlling If the sales budget will be used only to determine the sales manager's pay
raise, potential for promotion, and bonus, then a conflict may arise as other
employees may not be in favor of it unless their salaries will also increase.
Thus, this will affect the budget's effectiveness in controlling various
aspects of the organization, as other employees may perceive it as
favoritism or an unfair distribution of rewards. This can lead to
dissatisfaction among the broader workforce, potentially impacting overall
morale and productivity. It's essential to ensure that budgetary controls are
aligned with the broader goals of the organization and do not create
internal conflicts or resentment among employees.

4. In managerial accounting, companies use controls to reduce the risk that their plans
will not be achieved. Do you agree? Give an example.
Yes, I agree that in managerial accounting, companies use controls to reduce the risk that their
plans will not be achieved. One of the primary objectives of managerial accounting is to help
organizations plan, monitor, and control their activities to achieve their goals efficiently and
effectively.

For example, let's consider a manufacturing company that has set a production target of
producing 1,000 units of a product in a given month. The management team uses managerial
accounting techniques to create a production budget that outlines the resources required, such
as raw materials, labor, and machine hours, to meet this target.
Now, to reduce the risk of not achieving this production goal, the company implements controls.
These controls may include:

1. Inventory Management: The company closely monitors the inventory levels of raw
materials to ensure that they have an adequate supply on hand. They set reordering
points and reorder quantities based on historical data and demand forecasts. This
control helps prevent production delays due to material shortages.
2. Production Scheduling: A production schedule is created, outlining the daily or weekly
production targets. Managers monitor the actual production against the schedule to
ensure that they are on track. If there are deviations, they can take corrective actions,
such as adjusting shifts or reallocating resources.
3. Quality Control: To meet production goals, it's crucial to maintain product quality. The
company implements quality control measures at various stages of the production
process to minimize defects and rework. This control ensures that the produced units
meet quality standards and reduces the risk of having to rework or discard products.
4. Labor Management: Labor costs are a significant part of production expenses. The
company uses labor budgeting and performance monitoring to ensure that the workforce
is productive and aligned with production targets. If productivity falls behind, managers
can take actions like providing additional training or adjusting staffing levels.
5. Cost Monitoring: The company closely monitors production costs, comparing actual
costs with the budgeted costs. If costs start to exceed budgeted levels, it triggers a
review and potential cost-saving measures to keep the production process efficient and
cost-effective.
In this example, managerial accounting controls are essential for reducing the risk that the
company will not achieve its production plans. These controls help ensure that resources are
used efficiently, production stays on track, and the company can meet its production target of
1,000 units.
5. Actually, there are the three pillars of managerial accounting are planning, controlling,
and decision making. Provide an example of how planning, controlling, and decision
making should be done by manager of the company other than accounting manager.
a. Planning:
1. Established sets clear objectives, such as increasing online sales by 15% in the next
quarter and expanding the customer base by targeting a new demographic
2. Specify how goals will be achieved, outlines the strategies to achieve. For instance,
they plan to launch a digital marketing campaign targeting the new demographic through
social media advertising and email marketing.
3. Develop budgets, creates a marketing budget that outlines the expected costs for
advertising, content creation, and any other necessary expenses. This budget helps
allocate resources effectively.
b. Controlling:
The control function gathers feedback to ensure that the actual sales figures, website
traffic, and social media engagement regularly are being followed. Feedback in the form
of performance reports that compare actual results with the budget are an essential part
of the control function.
c. Decision Making:
involves making a selection among competing alternatives to what sould we be selling to
promote them differently, discontinue them, or explore new product offerings based on
market trends, who should we be serving based on data and feedback, the manager
may decide to refine the target audience and how should we execute the marketing plan.
This includes choices like which social media platforms to use, the content strategy, and
the timing of campaigns.

These principles apply to various managerial roles across an organization, helping

managers achieve their objectives and adapt to changing market conditions effectively.

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