Healthful Foods, Inc. , a manufacturer of breakfast cereals and snack bars, has experienced several years of steady growth in sales, profits, and dividends while maintaining while maintaining low level of debt. The board of directors adopted a long-run strategy to maximize the value of the shareholders' investment. In order toachieve its goal, the board of directors established the following five-year financial objectives.

-Increase sales by 12 percent per year.

-Increase income before taxes by 15% per year.

-Maintain long-term debt at a maximum of 16 percent of assets. These financial objectives have been

attained for the past three years. At the beginning of last year, the president of Healthful Foods, Andrea Donis, added a fourth financial objective of maintaining cost of goods sold at a maximum of 70% of sales. This goal also was attained last year.

The budgeting process at Healthful Foods is to be directed toward attaining these goals for the forthcoming year, a difficult task with the economy in a prolonged recession. In addition, the increased emphasis on eating healthful goods has driven up the price of ingredients used by the company significantly faster than the expected rate of inflation. John Winslow, cost accountant of Healthful Foods has responsibility for preparation of the profit plan for next year. Winslow assured Doni that he could present a budget that achieved all of the financial objectives. Winslow believed that he could overestimate the ending inventory and reclassify fruit and grain inspection costs as administrative rather than manufacturing costs to attain the desired objective. The actual statements for 2019 and the budgeted statements for 2020 that Winslow prepared are as follows:

HEALTHFUL FOODS INC Income Statement (In USDoIlars) Cash 10,000 17,000 Accounts Receivable 60,000 68,000 Inventory 300,000 365,000 Plant and Equipment (net of accumulated decpreciation) 1,630,000 1,600,000 Total 2,000,000 2,050,000 Liabilities Accounts Payable 110,000 122,000 Long-te rm debt 320,000 308,000 Stockholders' Equity Common Stock 400,000 400,000 Retained Earnings 1,170,000 1,220,000 Total 2,000,000 2,050,000 The company paid dividends of $27,710 in 2019 and the expected tax rate for 2020 is 34 percent. Questions: 1. Describe the role of budgeting in a firm's strategic planning. 2. For each of the financial objectives established by the board of directors and the president of Healthful Foods, Inc., determine whether John Winslow's budget attains three objectives. Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer Objective Attained/Not attained Calculations 3. Explain why the adjustments contemplated by John Winslow are unethical, citing specific standards of ethical conduct for management accountants. Sales Less: Variable costs Cost of goods sold Selling and administrative Contribution Margin Less: Fixed costs Manufacturing Selling and Administrative Income from operations HEALTHFUL FOODS INC Income Statement (In USDollars) 2019 Actual 850,000 510,000 90,000 250,000 85,000 50,000 105,000 2020 Budget 947, 750 574,725 87, 500 285, 525 94,775 70,000 120,750