Describe some of the pitfalls of using a budget or target to assess performance and explain how Rita might overcome these pitfalls.

Potential negative outcomes of budgeting include: (Check all that apply.)

Potential negative outcomes of budgeting include: (Check all that apply.)Multiple select question.decreased communication.unethical behavior.unnecessary spending.budgetary slack.

Excessive reliance on budgets can result in:Question 24Select one:a.a reduction in cross department cooperation.b.a focus on short term results.c.a management focus on meeting budget targets at any cost.d.all of the given answers are correct.

While Rita knew Glenn’s experience did not fit neatly with her business’ needs, she could not find any replacement. Describe some additional controls Rita should consider implementing to ensure that the financial and managerial reports he produced are valid, accurate and complete.

Rita’s hiring! With her business really starting to take off, Rita realised she could no longer do everything herself and had recently hired a social media and sales analyst (Peggy), a pastry chef (Florence) and a sous chef (Marco), as well as a bookkeeper (Glenn).  It wasn’t long before Rita realised that managing staff wasn’t as easy as she thought it was going to be. Peggy was concerned that her performance goals were very vague and that the goalposts seemed to be continuously moving, making it almost impossible for her to track her progress. Her main job was to manage Rita’s Muffins' social media accounts (mainly Instagram and Facebook) and to drive sales.  There was some dispute about whether her target should be measured by “followed” links to Rita’s Muffins landing page or actual sales generated from a “followed” link. So the precise calculation hadn’t been locked down. Also, every time the business beat target, the targets would be increased, which Peggy didn’t think was very fair. They also seemed ridiculously ambitious, or in her words, “totally unachievable.” Glenn’s previous role was with a large corporate where the financial cycles were, by and large, automated. It was quite a shock coming to such a manual operation as Rita’s Muffins. He passed his bookkeeping exams in the 1980s, so he could remember very little about how to set up payroll from scratch. The result was that Peggy didn’t get paid, Florence got paid twice in the same cycle, and Marco was taxed at twice the normal rate. All three said they were going to quit if it wasn’t sorted by the next pay period.Despite these issues, Rita’s muffin baking business appears to be doing increasingly well. Every week, she’s baking at least 10% more muffins than the previous week. Therefore, she was somewhat shocked when her bookkeeper Glenn told her that if things didn’t improve quickly, they might not be able to make payroll next month. When she asked what was causing the cashflow squeeze, all Glenn was able to say was that the forecast gross profit margin was 67%, but they were only hitting 58%. He then shrugged his shoulders and said: “I’m not sure why, we costed the muffins accurately enough and then priced for a 67% gross profit margin.”Rita started by asking Florence and Marco what they thought the problem was. Florence reminded Rita that their policy was to only sell muffins baked within the last 24 hours and give any leftovers to the shelter. She also mentioned that they always seemed to send a lot of muffins to the local homeless shelter on Sundays and Mondays. Rita checked the production records, and they seemed to be baking the right amount on Sundays and Mondays. Further, the problem only seemed to have started when they changed from a “bake-to-order” system to a “bake-to-forecast” system.One other thing Rita noticed while checking the production records was that while the number of muffins baked on Sundays and Mondays matched the forecast, on Wednesdays and Thursdays, they seemed to be baking 20% more muffins than forecast. However, they were only donating a handful of muffins to the shelter.