Zuzu is a large manufacturer of snack cakes. The company operates distribution centers in Chicago. The distribution center bakes and packages the snack cakes and ships them to grocery warehouses throughout the country. Because of the high standards set for both quality and appearance, there is a reasonable number of “seconds” that do not meet standards and are sold to company outlets for sale at reduced prices. In recent years, the company’s average yield has been 90% of first-quality products for sale to grocery warehouses. The remaining 10% is sent to the outlet store. Zuzu’s performance-evaluation system pays its distribution center managers substantial bonuses if the company achieves annual budgeted profit numbers. In the last quarter of 2017, Noah Spalding, Zuzu’s controller, noted a significant increase in yield percentage of the Chicago distribution center, from 90% to 98%. This increase resulted in a 10% increase in the center’s profits. During a recent trip to the Chicago center, Spalding wandered into the snack cake warehouse. He noticed that most of the snack cake “seconds” were being packed and sent off to grocery warehouses instead of being sent to the outlet stores. When he asked one of the workers, he was told that the center’s manager had directed workers to stop sending all the “seconds” to the outlet except for the extremely damaged packages. This practice resulted in the center overreporting both yield and ending inventory of normal, saleable product. The overstatement of Chicago inventory will have a significant impact on Zuzu’s financial statements. Q. Which lever of control is Zuzu emphasizing? What changes, if any, should be made?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Zuzu is a large manufacturer of snack cakes. The company operates distribution centers in Chicago. The distribution center bakes and packages the snack cakes and ships them to grocery warehouses throughout the country. Because of the high standards set for both quality and appearance, there is a reasonable number of “seconds” that do not meet standards and are sold to company outlets for sale at reduced prices. In recent years, the company’s average yield has been 90% of first-quality products for sale to grocery warehouses. The remaining 10% is sent to the outlet store. Zuzu’s performance-evaluation system pays its distribution center managers substantial bonuses if the company achieves annual budgeted profit numbers. In the last quarter of 2017, Noah Spalding, Zuzu’s controller, noted a significant increase in yield percentage of the Chicago distribution center, from 90% to 98%. This increase resulted in a 10% increase in the center’s profits. During a recent trip to the Chicago center, Spalding wandered into the snack cake warehouse. He noticed that most of the snack cake “seconds” were being packed and sent off to grocery warehouses instead of being sent to the outlet stores. When he asked one of the workers, he was told that the center’s manager had directed workers to stop sending all the “seconds” to the outlet except for the extremely damaged packages. This practice resulted in the center overreporting both yield and ending inventory of normal, saleable product. The overstatement of Chicago inventory will have a significant impact on Zuzu’s financial statements.
Q. Which lever of control is Zuzu emphasizing? What changes, if any, should be made?
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