80.2K

Verified Solution

Link Copied!

Jahful Foods Inc., a manufacturer of breakfast cereals and snack bars, has experienced several years of dy growth in sales, profits, and dividends while maintaining a relatively low level of debt. The board of directors has adopted a long-run strategy to maximize the value of the shareholders' investment. In order to achieve this goal, the board of directors established the following five-year financial objectives. Increase sales by 12 percent per year. Increase income before taxes by 15 percent per year. Maintain long-term debt at a maximum of 16 percent of assets, These financial objectives have been attained for the past three years. At the beginning of last year, the president of Healthful Foods, Andrea Donis, added a fourth financial objective of maintaining cost of goods sold at a maximum of 70 percent of sales. This goal also was attained last year. The budgeting process at Healthful Foods is to be directed toward attaining these goals for the worthcoming year, a difficult task with the economy in a prolonged recession. In addition, the increased emphasis on eating healthful foods has driven up the price of ingredients used by the company costs as administrati significantly faster than the expected rate of inflation. John Winslow cost asce Foods, has responsibility for preparation of the profit plan for next year. Winsler he could present a budget that achieved all of the financial objectives. Winslow but overestimate the ending inventory and reclassify frust and grain inspection costs as a than production costs to attain the desired objective. The actual statements for 20 statements for 20x2 that Winslow prepared are as follows: HEALTHFUL FOODS INC. Income Statement 2014 20x1 Actual $850.000 5743 510,000 90.000 $250.000 $285.575 Less: Variable costs: Cost of goods sold Selling and administrative Contribution margin Less: Fixed costs: Production Selling and administrative Income before taxes 85.000 50.000 94.715 70.00 $120,5 $105,000 HEALTHFUL FOODS INC Balance Shoe 20x Actual 20:2 Budget Assets $ Cash 10.000 60,000 300.000 17.000 68.000 355.000 Accounts receivable Inventory Plant and equipment inet of accumulated depreciation 1600.000 1,630.000 $2.000.000 $200.000 To $ 110.000 320.000 $ 172.000 308.000 Liabilities: Accounts payable Long-term debt Stockholders' equity Common stock Retained earnings Total 400.000 400,000 1,170,000 $2.000.000 2 is 34 pero The company paid dividends of $27.720 in 20x1, and the expected tax rate for 20x215 Required: 1. Describe the role of budgeting in a firm's strategic planning. 2. For each of the financial objectives established by the board of directors and the presso Healthful Foods Inc., determine whether John Winslow's budget attains these object your conclusion in each case by presenting appropriate calculations, and use the follo for your answer. the president of these objectives. Suppe the following for Objective Attained/Not Attained Calculations 3. Explain why the adjustments contemplated by John Winslow are unethical, citing Spor dards of ethical professional practice for management accountants. citing specific

Answer & Explanation Solved by verified expert

See Answer