Raiders Corporation is a company with annual sales of $50 million. Its budget committee has created the following policy that the company uses each year in developing its master budget for the following calendar year:
May The company’s controller and other members of the budget committee meet to discuss plans and objectives for next year. The controller conveys all relevant information from this meeting to division managers and department heads.
June Division managers, department heads, and the controller meet to discuss the corporate plans and objectives for next year. They develop a timetable for developing next year’s budget data.
July Division managers and department heads develop budget data. The vice president of sales provides them with final sales estimates, and they complete monthly sales estimates for each product line.
Aug. Estimates of next year’s monthly production activity and inventory levels are completed. Division managers and department heads communicate these estimates to the controller, who distributes them to other operating areas.
Sept. All operating areas submit their revised budget data. The controller integrates their labor requirements, direct materials requirements, unit cost estimates, cash requirements, and profit estimates into a preliminary master budget.
Oct. The budget committee meets to discuss the preliminary master budget and to make any necessary corrections, additions, or deletions. The controller incorporates all authorized changes into a final draft of the master budget.
Nov. The controller submits the final draft to the budget committee for approval. If the committee approves it, it is distributed to all corporate officers, division managers, and department heads.
1. Comment on this policy.
2. What changes would you recommend?