Xellnet provides e- commerce software for the pharmaceuticals industry. Xellnet is orga-nized into several divisions. A companywide planning committee sets general strategy and goals for the company and its divisions, but each division develops its own budget.

Lonnie Draper is the new division manager of wireless communications software. His division has two departments: development and sales. Chad Sanchez manages the 20 or so programmers and systems specialists typically employed in the development department to create and update the division’s software applications. Liz Smith manages the sales department.

Budgeting is in progress. Sanchez met with his staff and is now struggling with two sets of numbers. Alternative A is his best estimate of next year’s costs. However, unexpected problems can arise when writing software, and finding competent pro-grammers is an ongoing challenge. He knows that Draper was a programmer before he earned an MBA so he should be sensitive to this uncertainty. Consequently, he is thinking of increasing his budgeted costs (Alternative B). His department’s bonuses largely depend on whether the department meets its budgeted costs.

Liz Smith is also struggling with her sales budget. Companies have made their initial investments in communications software so it is harder to win new customers. If things go well, she believes her sales team can maintain the level of growth achieved over the past few years. This is Alternative A in the sales budget. However, if Smith is too optimistic, sales may fall short of the budget. If this happens, her team will not receive bonuses. Therefore, Smith is considering reducing the sales numbers and sub-mitting Alternative B.

Split your team into three groups. Each group should meet separately before the entire team meets.

Requirements

1. The first group plays the role of development manager Chad Sanchez. Before meeting with the entire team, determine which set of budget numbers you are going to present to Lonnie Draper. Write a memo supporting your decision. Give this memo to the third group before the team meeting.

2. The second group plays the role of sales manager Liz Smith. Before meeting with the entire team, determine which set of budget numbers you are going to present to Lonnie Draper. Write a memo supporting your decision. Give this memo to the third group before the team meeting.

3. The third group plays the role of division manager Lonnie Draper. Before meeting with the entire team, use the memos that Sanchez and Smith provided you to prepare a division budget based on the sales and development budgets. Your divisional overhead costs (additional costs beyond those incurred by the development and sales departments) are approximately $ 390,000. During the meeting of the entire team, the group playing Draper presents the division budget and considers its implications. Each group should take turns discussing its concerns with the proposed budget. The team as a whole should consider whether the division budget must be revised. The team should prepare a report that includes the division budget and a summary of the issues covered in the team meeting.

XELLNET Wireless Division Development Budget 2015 Alternative A Salaries Expense Gncluding overtime and part time) 2.400,000 120,000 65,000 255,000 100,000 S 2,940,000 Software Expense Travel Expense Depreciation Expense Miscellaneous Expense Total Expense Alternative B 5 2,640,000 132,000 71,500 255,000 110,000 $ 3,208,500 XELLNET Wireless Division Sales Budget 2015 Alternative A Sales Revenue 000,000 4,500,000 Alternative B 5 5,000,000 Salaries Expense Travel Expense 360,000 210,500 360,000 240,000