Case 20-4 Interpreting Management reports: Budgeting Procedures Since Smart Enterprises inaugurated participative budgeting 10 years ago, everyone in the organization-from maintenance personnel to the president's staff-has had a voice in the budgeting process. Until recently, participative budgeting has worked in the best interests of the company as a whole. Now, however, it is becoming evident that some managers are using the practice solely to benefit their own divisions. The budget committee has therefore asked you, the company's controller, to analyze this year's divisional budgets carefully before incorporating them into the company's master budget The Gadget Division was the first of the company's six divisions to submit its budget request for next year. The division's budgeted income statement follows Smart Enterprises Gadget Division Budgeted Income Statement For the Years Ended December 31 Budget for This Year Budget for next Year Increase (Decrease) Net sales Radios Appliances Telephones Miscellaneous Net sales 850,000 680,000 270,000 84,400 $1,884,400 750,960 $ 1,133,440 910,000 740,000 305,000 90,000 $2,045,000 60,000 60,000 35,000 5,600 $160,600 (33,460) $194,060 717,500 Less cost of goods sold Gross margin Operating expenses: $ 1,327,500