Speedy Curry is a manufacturer of curry ready meals, and it has used a traditional incremental budgeting

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Question:

Speedy Curry is a manufacturer of curry ready meals, and it has used a traditional incremental budgeting system for a number of years. In the past the system has seemed to work well, the budgets prepared by the accounting team have been well received by managers and targets set have been generally achieved.

In the last few years however, it has become apparent that the budgeting system has not been running as smoothly. The production manager has been called to see the Divisional Managing Director to explain why the production budget has not been met. The sales manager has also been called on to explain why the number of customer complaints has risen in relation to quality and why delivery times and sales targets have not been achieved.

On investigation you find the following information:

1. The divisional accounting team have been preparing production and sales budgets without any participation from the production manager or sales manager. This budgeted information has been used to set targets for these two managers.

2. In an attempt to keep costs down the production manager altered the raw material mix to use more of the cheaper sauce and less of the expensive chicken in the best-selling curry.

3. The sales manager took on an extra order for the best-selling chicken curry of 2,000 units even though the factory was at 95% capacity [full capacity would be 100,000 units].

4. There is a big swing in the ready meal market towards customers preferring vegan curry rather than chicken.

A) Critically discuss the role of participation in the budgeting process. Comment on why the information found above may lead to ineffective budgeting and inability to meet targets

B) Consider how variances such as Mix and Yield and Planning and Operational variances could be used by the division to aid in the evaluation of the managers performance. Use numerical illustrations to support your answer.