PART I:CREATING THE BUDGET

MEETINGS WITH DIVISIONAL MANAGERS

MEETING WITH THE SALES DEPARTMENT

Walking down the hallway towards the office of Jeff Barza, the sales manager, Nicole read the results for last quarter which ended on December 31, 20x0. Frenchies sold 45,000 one-dozen packages of muffins for $5.50 each, 65,000 one-dozen packages of cookies for $4.75 each, and 85,000 one-dozen loaves of bread for $5.25 each. When Nicole got to Jeff's office, he motioned her in to have a seat.

"Is it time for our meeting already?" he asked. "Where does the day go?"

"Who knows? It seems like one minute I'm having my morning muffin and the next I'm saying good-bye to everyone," Nicole said with a sigh. "There's never time to get everything done. And now I get to do the budget." Jeff started to laugh. "Thanks," she muttered. "I knew I could count on your support."

"I'm sorry. I just have to laugh at the amount of time you are going to put into something that isn't really used anyway, except for setting bonuses, of course."

"Not really used? I don't know how it's been around here in the past, but this year, at least, the budget will prove to be a valuable tool." Nicole waved away Jeff's retort. "Anyway, one way or another I have to create one and, as you know, the process always starts with projected sales. Do you have a copy of last quarter's results?"

"Yes, right here somewhere," Jeff said, shuffling papers around on his desk. "Got it!" he exclaimed, waving it gently as he pulled it from under a stack of other papers. "Now, what do you want to know exactly?"

"Well, Andy thinks that since we have established a strong following both locally and in our new markets, we can raise our prices slightly next year without a sharp drop in sales. He was thinking $6.00 for muffins, $5.25 for cookies, and $5.75 for bread. What do you think?"

"I agree," Jeff said eagerly. "I've been pushing that for years. Of course, I think that sales will drop some in the first quarter of next year. They always drop off a bit after the holidays anyway, but with the increase in sales price . . . I'd say a 20 percent drop from the fourth quarter results we have here." He looked up questioningly and raised an eyebrow.

Nicole frowned. "That sounds kind of high. Based on what I saw in the dairy industry; I was thinking the drop would only be about 10 percent."

Jeff looked a little uncomfortable and shuffled around in his chair. "Well, it's a little different for a specialty bakery. Our price is a little more elastic than dairy products. Besides, 20 percent is a more conservative estimate and in the past we wanted no surprises." He looked at her and challenged, "Are you going to change that?"