Timothy is a production manager for BestMode a clothing company in News South Wales. He is often asked to participate in the companys annual budgeting process. Sofia -the Chief Executive Officer has requested Timothy to submit his departments budgeted production for the coming year. Sofia reviews and typically adds 12 percent to the production budget provided by Timothy. The adjusted amount becomes Timothys target production level for the budgeted year. Accordingly, Timothy can receive a cash bonus if his department exceeds the projected production level. Required:

a. Explain any incentive that Timothy might have to be dishonest with Sofia about the production level he thinks the department can achieve. [5 marks]

b. Explain the impact Timothys inaccurate production estimates could have on other company departments or employees. [5 marks]

c. Suggest what should be done to prevent a manager from providing inaccurate budgets which can easily achieved. [5 marks]

chapter: management accounting