Question

The sales budget is usually the first and most crucial of the component budgets in a master budget because all other budgets usually rely on it for planning purposes.

Required

Assume that your company’s sales staff provides information on expected sales and selling prices for items making up the sales budget. Prepare a one-page memorandum to your supervisor outlining concerns with the sales staff’s input in the sales budget when its compensation is at least partly tied to these budgets. More generally, explain the importance of assessing any potential bias in information provided to the budget process.

Short answer

Setting up lower budgets nullifies the intention of creating budgets.

Step-by-step solution

Meaning of Budget

Budgeting is thepractice of planning for the future. Management uses it as an internal tool. It is prepared for a certain period. This procedure aids managersin planning for the future and maintaining control over the organization's operations

 Writing a memo

From:

To Supervisor

Date:

Subject: Outlining concerns with the sales staff's input in the sales budget.

Dear Friend,

I'm writing to express my dissatisfaction with the sales staff's contribution to the budget. As you may be aware, the sales staff of that firm supplies information on predicted sales and selling prices for things included in the sales budget, and the sales team's income is based on these budgets. My issue is evaluating potential bias in the information presented to the budget process by salespeople. Because incentives are awarded when sales surpass anticipated sales, salespeople can underreport achievable sales within budget. When the budgets are set lower than realistic goals, it negatively influences the company. Setting smaller budgets defeats the purpose of making budgets in the first place. Only credible, unbiased, and sensible estimations may be used to create a meaningful budget. I hope you are aware of my worry.

Yours

XYZ