Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 33

Budget Revisions: Ethical Issues

Elizabeth Jablonski is the director of Research and Development for Galaxy Electronics. Last week, she submitted the following funding request as part of the annual budget process.

Project	Funding Request
1. Portable audio project	$2,500,000
2. Aircraft guidance system	1,800,000
3. Automobile navigation system	3,000,000
4. Miniature DVD player	1,200,000
Total request	$8,500,000

The aircraft guidance system is a project the company has publicly announced and is marketing strongly to manufacturers. The miniature DVD project has received little support in the company but is one of Elizabeth’s favorites. The chief financial officer requests all groups to revise their budgets because of lower than expected sales for the company. Department heads have been asked to submit new budgets that are 10 percent below their original submissions.

Knowing the company’s commitment to the aircraft guidance system, Elizabeth submits the following revision noting that it is 10 percent lower as requested.

Project	Revised Funding Request
1. Portable audio project	$2,450,000
2. Aircraft guidance system	1,000,000
3. Automobile navigation system	3,000,000
4. Miniature DVD player	1,200,000
Total request	$7,650,000

Required

a. What do you think Elizabeth is trying to accomplish with the revised request? Is this ethical?

b. Is Elizabeth likely to be successful in achieving the goal you identified in requirement (a)?

Step 1 of 3

Budget revision:

Budget is a financial plan for a given period of time. It details the planned expenses under different heads and is necessary for cost control and revenue management.

Requests for budget revision are necessary because sometimes it may happen that the actual expenses may not match with the planned expenses. So, the budget must be revised in order to meet the actual expenses and thus plan accordingly for the future periods.

A formal request for budget revision is submitted generally if there are budget revision restrictions imposed in the terms and conditions or the revision request requires considerable changes in the budget under different heads.