The production manager has been asked to prepare next year’s budget urgently for the Production Director, so that the overall budgetary targets for the company may be finalised.
As he has not heard officially about the price reduction at the time of submitting the budget, the production manager includes the current year’s material cost price as the budgeted cost and bases his total costs on this, knowing that this will build some ‘slack’ into his budget when the price reduction eventually comes through.
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