The six divisions of Beale, Inc., are in different regions of the United States, and all but one are situated a great distance from corporate headquarters. The Western Division is the exception;

its offices as well as Beale’s corporate headquarters are in San Diego. Two months ago, division managers received a notice from the president requesting their attendance at a meeting in San Diego to hear a presentation on a proposed budgeting system. Division managers were told to plan to be in attendance at the meeting for two days and to be certain that their assistant managers were in their division’s office during their absence.

According to the agenda, the first morning of the meeting was to be spent in introducing the budgeting system. After lunch on the first day, the division managers were to vote concerning their acceptance of the system. Then, assuming the vote was positive to accept the system, the remainder of the two days would be spent in learning the system’s details and how to implement it.

Under the present budgeting system, division managers submit budgeted revenue and expense figures to corporate headquarters. It is understood that since these were merely ballpark figures the corporate controller and president would refine them. However, before the expense and revenue projections are finalized, a conference call is made to each division to receive their input.
The morning of the first day of the division managers’ meeting was spent in presenting the new budget system. Top management explained that they believed the divisions needed more autonomy and in turn, the division managers should have the opportunity to earn a bonus if they performed within the budget. The bonus would be calculated on divisional return on investment using an asset base composed of divisional plant assets employed. Corporate management would establish divisional budgets since they were more aware of the role of each division in achieving the overall company objectives. The previous year’s data adjusted for economic and industry changes would be the basis for each division’s budget. Since each division differs significantly in operating and marketing techniques used, corporate managers explained that they would consider these variations. In addition, after corporate management established divisional budgets, they cannot be modified by division managers under the new system because of the confusion it would create in developing the total companywide budget. As in the past, corporate managers would have the final decision regarding the commitment of funds to purchase machinery and other capital assets as well as to expand existing facilities. Division executives would continue to propose investment projects for their own segments for corporate review.
After the president outlined the proposed procedure, the Western Division manager explained the challenges each individual would have supporting the new system. Further, the Opportunity to earn a bonus was presented as a significant advantage. The Western Division manager urged adoption of the system and used data from his segment to reveal what he expected his bonus to be next year if the plan was accepted.
Since he had more immediate access to the corporate managers and knew what was being planned for the meeting, he had previously taken the specifics of the proposal and applied them to his own situation in preparation for this presentation. To further his argument, he stressed how much more aware each division manager would be of the income/asset relationship.
He concluded by stating that he was confident of their vote, and that if they had any questions, they could be answered in the implementation session which would. begin after the vote was conducted.
As the division managers dismissed for lunch, several commented, “Where do we go from here?” The Northern Division manager remarked, “Now, you are smarter than that, do we have any choice? Besides if we render a negative vote, what do we do during the one and one-half days remaining?”
Required:

a. Identify the behavioral problems you expect the company to encounter as a result of the meeting.

b. Evaluate the proposed budgeting system, identifying the major disadvantages in implementation.