Question
In 2019, Terry Pandemic, new-accounts manager at Covid Bank, had been asked to project how many new accounts she will open during 2020. The local
In 2019, Terry Pandemic, new-accounts manager at Covid Bank, had been asked to project how many new accounts she will open during 2020. The local economy had been growing, and the bank had experienced a 10% increase in the number of new accounts over each of the past five years. In 2019, the bank had 10,000 accounts.
Pandemic is paid a salary, plus a bonus of $20 for every new account above the budgeted amount. Thus, if the annual budget calls for 1,000 new accounts, and 1,080 new accounts are obtained, her bonus will be $1,600 (80$20).
Pandemic believes that the local economy will continue to grow at the same rate in 2020 as it has in recent years. She decided to submit a projection of 700 new accounts for 2020.
Required:
You were hired as a consultant by the bank president to make recommendations for improving the bank's operation.
- a) Write memorandum to the president defining and explaining the negative consequences of budgetary slack. Also discuss the bank's bonus system for the new-accounts manager and how the bonus program tends to encourage budgetary slack.Recommend measures to correct the projections.
- b) With the Covid 19 pandemic happening in the 1sthalf of 2020, how will the budget be changed? Draft a new memorandum (dated April 1, 2020) to the bank president regardingthe effects of the pandemic to the bank's operations.
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