SF Co. operates on a calendar year basis . It begins the annual budgeting process in late August , when the president establishes target for total sales dollars and net operating income before taxes for the next year . the sales 

targets is given to the marketing department , where the marketing manager formulates a sales budget by product line in both units and dollars. From this budget, sales quotas by product line in units and dollars are established 

for each of the corporation's sales districts . the marketing manager also estimates the cost of the marketing activities required to support the target sales volume and prepares a tentative marketing expense budget.

 

the executive vice president uses the sales and profit targets, the sales budget by product line, and the tentative marketing expense budget to determine the dollar amount that can be devoted to manufacturing and corporate 

office expense . the executive vice president , prepare the budget for corporate expense ,and then forward to production department the product line sales budget in units and the total dollar amount that can be devoted to 

manufacturing. 

 

the production manager meet with the factory manager to develop a manufacturing plant that will produce the required units when needed within the cost constraints set by the executive vice president the budgeting process 

usually comes to halt at this point because the production department does not consider the final resources allocated to it to be educated .

 

when this standstill occurs, the vice president of finance, the executive vice president , the marketing manager , and the production manage meet to determine the final budgets for each of the area .this normally result in modest 

increase in the total amount available for manufacturing cost ,while the marketing expense and corporate office expense budgets are cut . the total sales and net operating income figure proposed by the president are seldom 

changed . Although the participants are seldom pleased with the compromise ,these budgets are final. Each executive then develops a new detailed budget for the operations in his or her area.

 

None of the area has achieved its budget in recent year. Sales often run below the target . when budgeted sales are not achieved, each area is expected to cut cots so that the president's profit target can still be met. However , the profit target is seldom met because costs are not cut enough . In fact, costs are often run above the original budget in all financial areas. The president is disturb that SF has not been able to meet the sales an profit targets. He 

hired a consultant with considerable relevant industry experience . The consultant reviewed the budget for the past four years. He conclude to the product -line sales budgets were reasonable and that the cost and expense 

budgets were reasonable and that the cost and expense budgets were adequate for the budgeted sales and production levels.

 

Required :

a- How the SF budgeting process as employed by the SF contributes to the failure to achieve the president 's sales and profit targets ?

b- How could SF 's budgeting process could be revised to correct the problem.?

c- Should the functional area be expected to cut their costs when sales volume falls below the budget?