River Beverages: Budgeting Process and responsibility accounting
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Required
a. Discuss each step in River Beverages' budgeting process. Begin with the division manager's
initial reports and end with the board of directors' approval. Is each step necessary? Explain.
b. Evaluate River Beverages' responsibility-accounting system. Specifically, should the plant
managers be held responsible for costs or profits? Why?
c. Write a report to River Beverages' management stating the advantages and disadvantages of the company's budgeting process. Start your report by stating your assumption(s) about what River Beverages' management wants the budgeting process to accomplish.
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a. Discuss each step in River Beverages' budgeting process. Begin with the division manager's
initial reports and end with the board of directors' approval. Is each step necessary? Explain.
In the beginning of December the division managers submit a report to the vice-president for the region summarizing capital, sales, and income forecasts for the upcoming fiscal year beginning.
July 1. This report is used in the strategic planning process.
This process helps the forecasting function to be taken seriously and helps the division managers get a reasonably accurate estimate of the requirements of capital, the sales during the year and the income to be generated. In addition, as the division managers take into account the economic conditions and the market share, they also become part of the marketing planning and the strategic planning process. The division managers in short are not thrust with sales goals that they have to meet. On the other hand the drawback is that the forecasting activity is a subjective activity and the division managers need to base their forecasts on subjective issues. Their estimates are likely to be governed by the objectives of their own divisions rather than the strategic objectives of the company.
Strategic research team begins a formal assessment of each market segment in its region. The team develops a sales forecast for each division and this is converted into a company forecast.
The division manager reviews the forecast.
The strategic research team determines the strategic objectives of the team separately. This team because of its focus, competence or the definition of their tasks may come up with an entirely different set of forecasts for the different segments and the company as a whole. On one level since the division managers have already done the entire exercise, this is a duplication of efforts, on the other hand it might just provide a more accurate forecast. Whatever be the recommendations and findings of the strategic team, the fact that the division managers have already conducted the research means that there is a scope for conflict of results. If the findings of the strategic group were allowed to dominate would lead to dissatisfaction among the division managers and even de motivation.
The strategic research team and the strategic research team and the division controller review the district sales forecasts.
There is a precedence that is the division manager may review the forecast but has no authority to revise the forecast. This is short means that the district sales managers are given importance in the forecast development. If that be the case then involving the divisional managers in the forecasting is setting up the scenario for a potential conflict and confrontation. The alternative could be to let the strategic management group or the sales develop a forecast and the forecast be given to the divisional managers.
Finally, the top management reviews each division's competitive position, including plans to increase market share.
From the information given it seems the divisions do not have much say in the competitive position except to produce the budgeted quantity of beverages at the budgeted cost with minimum variance. There does not seem any product development or segmentation effort being done independently by the divisional managers. The competitive position of the division is based on the district sales managers, the VPs and the strategic management group. If the division needs to increase the market share the sales managers do the competitive implementation and the divisional managers do the production.
After top management approves the sales budget, it is separated into sales budget for each plant.
This is further broken down by price, volume, and product type. Plant managers break the plant budget down into various plant departments.
This is the typical control process of the production. The strategic control is established by there being a sales budget for the sales managers and production goals for each division. The plant budget for the production, based on the forecast is then broken down into budgets and objectives for each plant division. The ultimate goal is to keep performance as close to the budget as possible and examine any variance that takes place and fix responsibility for variances.
Operations and maintenance managers work together to develop cost standards and cost-reduction targets for all departments. Budgeted cost reductions from productivity improvements, ...
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