Since Rood Enterprises inaugurated participative budgeting 10 years ago, everyone in the organization-from maintenance personnel to the president's staff-has has 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. The division's budgeted income statement follows.

*Less expensive merchandise will be purchased in the next year to boost profits.
†Depreciation is increased because additional equipment must be bought to handle increased sales
1. Recast the Motor Division's budgeted income statement in the following format (round percentages to two places):

2. Actual results for this year revealed the following information about revenues and cost of goods sold:

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.

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Rood Enterprises Motor Division Budgeted Income Statement For the Years Ended December 31 Budget for Budget for Increase This Year Next Year Decrease) Net sales Radios Appliances Telephones Miscellaneous $ 850,000 910,000 60000 60,000 35,000 5,600 $1,884,400 $2,045,000 $160,600 717.500 33,460) $1,133,440 $1,327,500$194,060 680,000 270,000 84,400 740,000 305,000 90,000 Net sales Less cost of goods sold Gross margin Operating expenses 750,960 Wages Warehouse Purchasing Delivery/shipping $ 94,500 102,250 7.750 6,200 77,800 69,400 42,650 84,000 74,780 45,670 3,020 Salaries Supervisory 60,000 130,000 17,400 72400 62000 96,000 188,440 92,250 164,000 20,500 82,000 74,7501 102,500 204,500 32,250 34,000 3,100 Purchases, supplies Maintenance Depreciation Building rent Sales commissions Insurance 12,750 6,500 16,060 Fire 12,670 18,200 14,100 20,500 20,500 15,375 7,830 2,300 1,275 Liability Utilities Taxes 1,850 14,480 5,640 $1,003 290 $1,173,275 169985 S 130,150 154,225 S 24,075 16,600 26,520 4,610 18,450 41,000 10,250 Payroll Miscellaneous Total operating expenses Income from operations Less expensive merchandise will be purchased in the next year to boost profits Depreciation is increased because additional equipment must be bought to handle increased sales Budget for This Year Budget for Next Year Account Amount Percentage of Net Sales Amount Percentage of Net Sales Amount Percentage of Net Sales Net sales S 780,000 640,000 280,000 75,000 $1,775,000 cost of goodssold 763425 43.94 36.06 15.77 4.23 100.00 43.01 56,99 Radios Telephones Net sales Gross margin