Following completion of your MBA you are appointed Vice President of Operations for a major medical equipment manufacturer. Among your new responsibilities you find yourself in charge of coordinating next years production budget.

The production manager pulls you aside to complain that nobody listens to her. Her budget for this year called for the production of 20,000 surgical instruments and due to higher sales she has already produced almost that many with 3 months to go. She expects to go way over budget, and asks if for next year you could budget a production level of 30,000 surgical instruments so her costs can come in under budget next year.

The sales manager then pulls you aside and asks you to keep the production level flat so he will look good if he has another good year.

Your company has always used a static budget. You remember learning about flexible budgets in your MBA program, and believe this will help. Your company president is a great manager but is not familiar with flexible budgets.

Prepare a one page or less memo to the president explaining the value to the company as a whole of using a flexible budget going forward.