Fit-for-Life Foods Inc., a manufacturer of breakfast cereals and snack bars, has experienced several years of steady growth in sales, profits, and dividends while maintaining a relatively low level of debt. The board of directors has adopted a long-run strategy to maximize the value of the shareholders€™ investment. In order to achieve this goal, the board of directors established the following five- year financial objectives.
Increase sales by 12 percent per year.
Increase income before taxes by 15 percent per year.
Maintain long- term debt at a maximum of 16 percent of assets.
These financial objectives have been attained for the past three years. At the beginning of last year, the president of Fit- for- Life Foods, Andrea Donis, added a fourth financial objective of maintaining cost of goods sold at a maximum of 70 percent of sales. This goal also was attained last year. The company€™s budgeting process is to be directed toward attaining these goals for the forthcoming year, a difficult task with the economy in a prolonged recession. In addition, the increased emphasis on eating healthful foods has driven up the price of ingredients used by the company significantly faster than the expected rate of inflation. John Winslow, cost accountant at Fit- for- Life Foods, has responsibility for preparation of the profit plan for next year. Winslow assured Donis that he could present a budget that achieved all of the financial objectives. Winslow believed that he could overestimate the ending inventory and reclassify fruit and grain inspection costs as administrative rather than production costs to attain the desired objective. The actual statements for 20x4 and the budgeted statements for 20x5 that Winslow prepared are as follows:

FIT-FOR-LIFE FOODS INC.
INCOME STATEMENT

The company paid dividends of $ 55,440 in 20x4, and the expected tax rate for 20x5 is 34 percent.

Required:
1. Describe the role of budgeting in a firm€™s strategic planning.
2. For each of the financial objectives established by the board of directors and the president of Fit-for- Life Foods Inc. determine whether John Winslow€™s budget attains these objectives. Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer.
Objective Attained/ Not Attained Calculations
3. Explain why the adjustments contemplated by John Winslow are unethical, citing specific standards of ethical conduct for management accountants.
(CMA,adapted)

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20x5 Budgeted $1895,500 Actual $1,700,000 Less: Variable costs: Cost of goods sold Selling and administ atve 1,020,000 180,000 500,000 1,149,450 175,000 571,050 Contribution margin Less: Fixed costs: Production. Selling and administrative.. 170,000 120,000 210,000 189,550 40,000 S 241 500 Income before taxes.. FIT-FOR-LIFE FOODS INC. BALANCE SHEET 20x4 Actual Budgeted 20,000 120,000 600,000 $34,000 136,000 730,000 3,200,000 $4,100,000 Accounts receivable Plant and equipment (net of accumulated depreciation) Total $4,000,000 Liabilities Accounts paytbe.. Long-term debt 220,000 640,000 244,000 616,000 Stockholders equity Common stock 800,000 2,340,000 $4,000,000 800,000 2,440,000 $4,100,000 Retained eamings