Xellnet provides ecommerce software for the pharmaceuticals industry. Xellnet is organized into several divisions. A companywide planning

Question:

Xellnet provides ecommerce software for the pharmaceuticals industry. Xellnet is organized into several divisions. A companywide planning committee sets general strategy and goals for the company and its divisions, but each division develops its own budget.
Rick Watson is the new division manager of wireless communications software. His division has two departments: Development and Sales. Carrie Pronai manages the 20 or so programmers and systems specialists typically employed in the Development Department to create and update the division€™s software applications. Fernande Girarde manages the Sales Department. Xellnet considers the divisions to be investment centres. To earn his bonus next year, Watson must achieve a 30% return on the $3 million invested in his division. This amounts to $900,000 of income (30% Ã— $3 million). Within the wireless division, development is a cost centre, while sales is a revenue centre.
Budgeting is in progress. Pronai met with her staff and is now struggling with two sets of numbers. Alternative A is her best estimate of next year€™s costs. However, unexpected problems can arise in the writing of software, and finding competent programmers is an ongoing challenge. She knows that Watson was a programmer before he earned an MBA, so he should be sensitive to this uncertainty. Consequently, she is thinking of increasing her budgeted costs (Alternative B). Her department€™s bonuses largely depend on whether the department meets its budgeted costs.

Fernande Girarde is also struggling with her sales budget. Companies have made their initial investments in communications software, so it is harder to win new customers. If things go well, she believes her sales team can maintain the level of growth achieved over the last few years. This is Alternative A in the sales budget. However, if Girarde is too optimistic, sales may fall short of the budget. If this happens, her team will not receive bonuses. Therefore, Girarde is considering reducing the sales numbers and submitting Alternative B.

Split your team into three groups. Each group should meet separately before the entire team meets.
Requirements
1. Group 1 plays the role of Development Manager Carrie Pronai. Before meeting with the entire team, determine which set of budget numbers you will present to Rick Watson. Write a memo supporting your decision. Give this memo to Group 3 before the team meeting.
2. Group 2 plays the role of Sales Manager Fernande Girarde. Before meeting with the entire team, determine which set of budget numbers you will present to Rick Watson. Write a memo supporting your decision. Give this memo to Group 3 before the team meeting.
3. Group 3 plays the role of Division Manager Rick Watson. Before meeting with the entire team, use the memos that Pronai and Girarde provided to prepare a division budget based on the sales and development budgets. Your divisional overhead costs (additional costs beyond those incurred by the Development and Sales Departments) are approximately $390,000. Determine whether the wireless division can meet its targeted 30% return on assets given the budgeted alternatives submitted by your department managers.
During the meeting of the entire team, Group 3 presents the division budget and considers its implications. Each group should take turns discussing its concerns with the proposed budget. The team as a whole should consider whether the division budget must be revised. The team should prepare a report that includes the division budget and a summary of the issues covered in the team meeting.