Nova Solutions provides e-commerce software for the pharmaceuticals industry. Nova is orga- nized into several divisions. A companywide planning committee sets general strategy and goals for the company and its divisions, but each division develops its own budget. Rick Watson is the new division manager of Business-to-Business software. His division has two departments: Development and Sales. Patti McKeown manages the 20 or so pro- grammers and systems specialists typically employed in Development to create and update the division's software applications. Liz Smith manages the sales department. Nova considers the divisions to be investment centers. To earn his bonus next year, Watson must achieve a 30% return on the $3 million invested in his division. Within the Business-to-Business Division. Development is a cost center, while Sales is a revenue center. Budgeting is in progress. Patti McKeown met with her staff and is now struggling with two sets of numbers. Alternative A is her best estimate of next year's costs. However. NOVA SOLUTIONS Business-to-Business Division Development Budget 20XX Alternative A Alternative B Salaries expense (including overtime and part-time) Software expense. Travel expense Depreciation expense. Miscellaneous expense. Total expense. $2,300,000 $2,530,000 120,000 132.000 65.000 71,500 255.000 255.000 100,000 110.000 $2,840,000 $3,098,500 unexpected problems can arise when writing software, and finding competent programmers is an ongoing challenge. She knows that Watson was a programmer before he earned an MBA. so he should be sensitive to this uncertainty. Consequently, she is thinking of adding another 10% to her budgeted costs (Alternative B). Her department's bonuses largely depend on whether the department meets its budgeted costs. Liz Smith is also struggling with her sales budget. Companies have made their initial investments in business-to-business software, so it is harder to win new customers. If things go well, she believes her sales team can maintain the level of growth achieved over the last few years. This is Alternative A in the Sales Budget. However, if Smith is too opti- mistic, sales may fall short of the budget. If this happens, her team will not receive bonuses. Smith is therefore considering reducing the sales numbers and submitting Alternative B. Sales revenue.. Salaries expense Travel expense. NOVA SOLUTIONS Business-to-Business Division Sales Budget 20XX Alternative A $5,000,000 360,000 340,000 Alternative B $4,500,000 360,000 320,500 Split your team into three groups. Each group should meet separately before the entire team meets. Required 1. The first group plays the role of development manager Patti McKeown. Before meeting with the entire team, determine which set of budget numbers you are going to present to Rick Watson. Write a memo supporting your decision. Use the format shown in Decision Case 2. Give this memo to the third group before the team meeting. 2. The second group plays the role of sales manager Liz Smith. Before meeting with the entire team. determine which set of budget numbers you are going to present to Rick Watson. Write a memo supporting your decision. Use the format shown in Decision Case 2. Give this memo to the third group before the team meeting. 3. The third group plays the role of division manager Rick Watson. Before meeting with the entire team, prepare a division budget based on the sales and development budgets sub- mitted to you by McKeown and Smith. Your divisional overhead costs are approximately $390.000. Determine whether the Business-to-Business Division can meet its targeted 30% return on assets given the budgeted alternatives submitted by your department managers. During the meeting of the entire team, the group playing Watson presents the division budget and considers its implications. Each group should take turns discussing its concerns with the proposed budget. The team as a whole should consider whether the division budget must be revised. The team should prepare a report that includes the division budget and a summary of the issues covered in the team meeting.