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Hanson Industries (B) Solution Format: Sections and Questions I. The essential nature of the case.

Hansons budgeting plan takes place from April to July. Denny Hanson, the president of Hanson Industries was checking the fiscal year (FY) 1979 Final Budget Revision that had just been finished in early July 1978 and was considering if the current budgeting processes were the most suitable for Hanson Industries. Learning from mistake from the past, he believed that a tighter budgeting process must be developed to help reduce the effect of unexpected events such as much lower orders than forecasted. From experience, Denny was confidence that based on forecasting results, Hanson can produce up to 60% of total orders in the earlier of production process. II. The major controllership issue(s) being addressed in the case (briefly). The main controllership concern that being addressed in the case is whether the design of Hansons budget is considerably as a flexible budget process that Hanson can rely on regardless unexpected events that could occur. Another issue were raised during the case is to provide timely budget and information for production process.

III.

Answers to the case questions.

1. In a timeline format, trace the steps in the annual process of the development of the budget at Hanson Industries. Identify the key events over time that relate to the preparation of the budget. Record the date or time period at which each event takes place.

Date Apr-77

Participants Denny Hanson - President Chris Hanson - Executive VP Don Bertetto - VP new products Dave Snyder - Treasurer Blaise Colt - VP Marketing Pete Bloomer - VP

Events -Review sales and marketing strategy, and the current market strengths of the dealer organizations -Review company's financial situation and the possible capital expenditures and future growth -Determine the sustainable rate of growth

Oct-77

Operation Denny Hanson - President Chris Hanson - Executive VP Don Bertetto - VP new products Dave Snyder - Treasurer Blaise Colt - VP Marketing Pete Bloomer - VP Operation General managers of international operations

-Determine the models and sizes of boots to produce -Set price for these models -Establish volume objectives -> Treasurer issues a memo documenting basic planning parameters for preparing the budget -> operation managers receives the memo and begin preparing their budget

Last week of November 77

Denny Hanson - President Chris Hanson - Executive VP Dave Snyder - Treasurer

-Operation managers presents their department budget to Dave Snyder -Treasurer consolidates the results -Treasurer, Executive VP and President review three key areas: cash flow, capital expenditures, and revenues and profits -If there are any concerns or failure to meet the target revenue and profit, President and the treasurer will discuss and negotiate with operating managers and make any changes

16-Jan-78

Dave Snyder - Treasurer

necessary Complete any adjustment and consolidate the final budget

30-Jan-78

Board of Directors

Board of directors reviews the operation plan and approve preliminary budget

Jun-78

Dave Snyder - Treasurer

-Prepare the final budget revision: -Treasurer calculate the year's total orders taking into account 15% reorders, order cancellation and returns and come up with full budget. -Treasurer issues a memo to operating managers requesting their inputs for the final budget revision.

End of first week of July 78

Dave Snyder - Treasurer Board of Directors

-Treasurer finish final budget revision -Board of directors reviews the budget before submitting to the bank.

2. Given Hanson's history, economic environment and operating strategies, what changes would you recommend to the planning/budgeting process used by Hanson?

In our opinion, we think that Hansons budgeting process takes too long to complete. The planning process starts from April 1977, finish in July 1978, which takes more than a year to complete the Final Budget Revision. Hence, our recommendation that we have is the management should shorten the process to saves money and resources. Another issue that raises our attention is Hanson uses information from a year before the production actually happens to come up with the budget. Therefore, the information about the volume and market trends may be out of date. They should start the reviewing section around June where 85% of total orders were received. It will be a better benchmark because the management has the actual number of orders on hand. It also helps in shortening the budgeting process.

3. If Hanson grows as anticipated or diversifies, what changes, if any, should be made in the planning/budgeting process?

If Hanson grows as anticipated or diversifies, here are couples of suggestion that we have for their budgeting process: First, they should consider using external benchmarking to set control targets. By implementing this method, it creates realistic targets and avoids negotiating improvements over last year, which helps the improvements being made by the competition. Secondly, finance resource is an efficient tool that the management should take advantage of. The financial and statistical model building an abstract representation of a financial decision-making situation and it plays a great role in refining the forecasting budget model.

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