Question

Dave Ludwig is the chief financial officer (CFO) of a major sporting goods manufacturer, Playco. Playco manufactures four major product lines: golf equipment, hockey equipment, baseball equipment, and sporting apparel. All products are sold through an extensive network of independent retailers, some of which are major sporting goods outlets. Each product line is considered to be a separate division, headed up by a senior product manager who is responsible for all major day-to-day operating decisions, including pricing, product mix, production, and managing and expanding dealer relationships.
All of Playco’s senior product managers have been with the company for at least 6 years, with experience ranging from 6 to 15 years. In the past, Playco has always used a top-down approach to developing the master budget, whereby a senior management team, including the CEO, the CFO, and the vice-presidents of manufacturing and marketing, set the revenue and expense budgets each year for the four major product lines. These budgets have been based on the company’s strategic plans; the team’s analysis of the operating environment (including the key competitors); and other factors that could affect demand for sporting goods, such as expected inflation rates, interest rates, and changing demo-graphics.
Required:
1. Why might the top-down approach have led to inaccurate budgets in prior years?
2. Identify the problems with the participative budgeting approach being used at Playco. What consequences may result from their approach?
3. What changes would you recommend be made to the participative budgeting approach at Playco?


$1.99
Sales3
Views125
Comments0
  • CreatedJuly 08, 2015
  • Files Included
Post your question
5000