Price Department Store is a small business. During the past year the president,J.C. Price, gave each manager in the five sales departments a detailed sales plan (goal) and a selling expense budget. Price told the case writer: "My people do much, better under a budget program if I give them sales budgets quite a bit in excess of what I really expect them to be able to do. Of course,they don't know what I really; therefore,the high budget goals that I give them keep the pressure on. "The quarterly sales budgets are usually set at 15 percent above what Price really expects.
The case writer asked about the selling expense budgets:"Do you overstate them?" "Of course not, on most expenses, except their own salaries, I give them a tight budget-about 10 percent below and for the same reason."
"And how do they react to the quarterly performance report?" was the case writer's query. Price's response was, "They usually say, 'I did my best.' Two managers did exceed by secret quarterly budgets on both sales and expenses,but no one fully met the budgets that I gave them.
REQUIRED
1. Do you agree with the president's viewpoint? Explain why.
2.What changes would you recommend? Explain the basis for your recommendation.