Bus5431 Trochejm Week 7 10-1case Study

Jon-Michael Troche

BUS 5431 - Managerial Accounting

Spring II 2014

Professor: Dr. Khaled Abdel Ghany

10-1 Case-Study

EXECUTIVE SUMMARY

Ann Paxton, manager of the waste treatment facility for the city of Columbus park, Illinois, is preparing an annual expense budget. She predicted that in the coming year, 9-million gallons of waste would be processed at her facility. Knowing the fixed and variable costs, she has a general idea what she’s working with. Ann begins to speculate that that her supervisors will be adjusting her budget request by at least 10% below what she submits. She comes to the ethical dilemma: “Should I submit an inflated false-budget that accounts for this and any other unexpected costs to maximize my chance a promotion in the future?”

ANALYSIS

A budget expense sheet is a statement that shows the estimated expenses that are expected to be incurred in the current year. The budget expense sheet is prepared keeping in mind the past year’s expenses. It is unethical for Ann to escalate her budget calculations; the budget expense is only an estimate and does not reflect actual figures. Annual budget statements are used to gain a certain forecast on amounts (costs or income) that the entity could deal with in the coming year.

Ann’s plan to inflate her figures will make no real impact if the city controller (her supervisor) is planning to make cuts to the submitted budgets. For all she knows, he could have already designated a budget for her department based on the current or past figures. The risks in her actions do not weigh well against the consequences or rewards. Ann could be correct and receive a higher budget making it simpler for her chance at a promotion but could also be very negative if she’s incorrect in taking the risk and someone double checks her work.

The ideal solution is for her to be truthful about her department and request an increase to cover unknown situations. Unforeseen events can be forecasted into a budget...