Managerial Behavior and Budget Ethics. Stoller Corporation has seen a new revision of the budget system each year for the past five years. Bonuses followed strong budget performances. The following are changes made during the past few years:

Change 1: One year top management felt that, since wages were 60 percent of total expenses, the budget should simply focus on keeping next year's headcounts equal or below the current year's level. Most managers did this by shifting work to outside contractors.

Change 2: Concern over customer service caused top management to budget the number of back orders issued because an item was not available from existing inventory. A trip to Tahiti was given to managers with zero actual back orders.

Change 3: Because corporate expenses were viewed as being too high, the president decided to allocate all home office expenses to the nine divisions. Each division head budgeted down to "net income" and was evaluated on the compari- son of actual to planned "net income."

Change 4: Also, at the final budget approval stage for the last several years, the president forced each division to reduce its total expenses by an even five percent across the board. This year, the president increased the across-the-board cuts to 10 percent.

Required: Comment on Stoller Corporation's approach to budgeting and the possible im- pacts each change might have on the budget process and managers' behavior.