Five years ago. Jack Cadence and two colleagues left their positions with a large industrial firm to start up Advanced Technologies Co. (ATC), a software design company. Cadence, the major owner, obtained venture capital, and ATC commenced work on the design of a unique software package to make the use and integration of PCs easier. Since the comple¬

tion of this package, there has been good market acceptance, and Cadence has been able to raise the additional capital necessary to operate during the initial marketing stages. Cadence has concentrated on managing the company while the other two minority owners focused on design and development activities. ATC has now started on the development of new software to permit the ready usage of the underapplied power of the advanced micro¬

processors that have entered the marketplace.

With the continued sales growth of the initial software and the ongoing development of new programming products. Cadence has hired several seasoned marketing, sales, and pro¬

duction managers, as well as Jeff Cross, a senior accountant with a budgeting background.

ATC currently employs 70 people in the Design & Development, Marketing, Sales, Ac¬

counting, and Legal Departments. Recently, Cadence decided that, with the expansion of ATC, a formalized planning and control process should be established. Cadence asked Cross to work with him in developing the initial budget for ATC.

Since several of the senior managers were new to the company. Cadence forecasted the sales revenue based on his projections for both the market growth for the initial software and the successful completion of new product developments. Cadence further prepared pro¬

duction and expense projections. Cross used this information to construct departmental bud¬

gets and the overall company budget. Cadence and Cross reviewed and revised these bud¬

gets on several occasions.

When Cadence and Cross were satisfied, the various budgets were distributed with a cover letter which advised that ATC was adopting a formalized planning procedure. The letter further requested everyone's assistance in working together to achieve the budget ob¬

jectives in order to continue the company's successful and growing operations.

Several of the department managers, particularly the newly-hired seasoned personnel, were displeased with how the planning process was undertaken. In discussing the situation among themselves, they felt that some of the budget projections were overly optimistic and not realistically attainable.

Required:

1. The planning process that Jack Cadence and Jeff Cross utilized is referred to as a topdown budgeting process.

a. Explain why this is a top-down budgeting process, and compare it to a participa¬

tory budgeting process.

b. Describe the advantages associated with a top-down budgeting process.

2.

a. Describe the personal behavioral issues faced by Jack Cadence, as the founder of ATC, in initiating a formalized budgeting process.

b. Describe the behavioral problems for the remainder of the employees at ATC that may result from a top-down budgeting process.

3.

a. Outline specific recommendations that Cadence and Cross could have employed to initiate a participatory budgeting process,

b. Describe the advantages associated with a participatory budgeting process.
(CMA adapted)