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Ash Bus 630 Week 4 Dq 1 Behavioral Aspects of Budgeting

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Norton Company, a manufacturer of infant furniture and carriages, is in the initial stages of preparing the annual budget for next year.  Scott Ford has recently joined Norton’s accounting staff and is interested to learn as much as possible about the company’s budgeting process.  During a recent lunch with Marge Atkins, sales manager, and Pete Granger, production manager.  Ford initiated the conversation below. Read the conversation and answer the questions that follow.  Respond to at least two of your fellow students’ postings.

Ford:

Since I’m new around here and am going to be involved with the preparation of the annual budget, I’d be interested to learn how the two of you estimate sales and production numbers.


Atkins:

We start out very methodically by looking at recent history, discussing what we know about current accounts, potential customers, and the general state of consumer spending.  Then, we add that usual dose of intuition to come up with the best forecast we can.


Granger:

I usually take the sales projections as the basis for my projections. Of course, we have to make an estimate of what this year’s ending inventories will be, which is sometimes difficult.
 

Ford:

Why does that present a problem? There must have been an estimate of ending inventories in the budget for the current year.

Granger:

Those numbers aren’t always reliable because Marge makes some adjustments to the sales numbers before passing them on to me.


Ford:

What kind of adjustments?


Atkins:

Well, we don’t want to fall short of the sales projections so we generally give ourselves a little breathing room by lowering the initial sales projection anywhere from 5% to 10%.
 

Granger:

So, you can see why this year’s budget is not a very...

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