1. Describe the strategic content in which Quintana should judge Musimundo’s performance. What are the characteristics of the environment that Musimundo competes in? What are Pegasus’s strategic objectives for Musimundo? How do these factors affect the budgeting process?
2. The components of the company’s incentive plan are described in Exhibit 6. Using this information, can you tell what managers are accountable for? Using the data in the case, compare the list of things for which a manager is accountable with the list of things he has control over. Prepare such a list for Nalda (CEO) and Gejundes (Branch Manager).
3. According to Exhibit 7a, from January to June 2004 Musimundo generated AR$449,000 more gross margin before variable costs than it budgeted.
a. How much of the change in gross margin was due to :
i. Change in Sales?
ii. Change in unit margins?
iii. Changes in product mix?
b. How do you interpret this information? What questions should Quintana ask in the Board of Directors meeting? When you consider the results of this analysis and the other information in the managerial report, do you think Musimundo is in good shape?
4. According to Exhibit 7a, sales of CDs and cassettes for January to June 2004 period were AR$565,000 under budget. How do you interpret the change in sales? Do you share Quintana’s worries about missed opportunities in the rising economy?
5. Should the Board approve Nalda’s request to change the budget targets for the year? If so how extensive should these changes be?
6. Considering flexible budgeting principles, how would you change the reporting to simplify the Board’s analysis? Could your reporting improvements be applied to the electronics and CDs segments?
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