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Flexible Budgets and Budget Estimates

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Preparing a Flexible Budget


The flexible budget at the 70,000-unit and the 80,000-unit levels of activity is shown below.

(see attached file for data)

Complete the flexible budget at the 90,000-unit level of activity. Assume that the cost of goods sold and variable operating expenses vary directly with sales and that income taxes remain at 30 percent of operating income.


Budget Estimates

William George is the marketing manager at the Crunchy Cookie Company. Each quarter, he is responsible for submitting a sales forecast to be used in the formulation of the company's master budget.

George consistently understates the sales forecast because, as he puts it, "I am reprimanded if actual sales are less than I've projected, and I look like a hero if actual sales exceed my projections."

a. What would you do if you were the marketing manager at the Crunchy Cookie Company? Would you also understate sales projections? Defend your answer.

b. What measures might be taken by the company to discourage the manipulation of sales forecasts?

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