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ABC Enterprises is small organization based in Sialkot. This organization deals in sports equipment and normally they export in European countries. There are 30 employees in this organization who have been working for the last couple of years. This organization has an accounting department as well where accountant is having huge amount of work. Normally he uses different tables and spreadsheets for developing and drafting budgets. The financial year of ABC Enterprises is same as calendar year. Apart from accounting department, there are three sales managers and each one of them is taking monthly salary of Rs. 150,000. Besides this monthly salary, they are entitled to a bonus on the basis of sales target which are set at the start of year.

ABC Enterprises has planned to use annual fixed budget. ABC Enterprises has a bonus system comprised of two levels. Low level and upper level of revenue. For the year ended 31 December 2012, for example, each of the sales managers was given a lower target of securing Rs. 1.5m of sales revenue each, to be rewarded by an individual bonus equating to 15% of salary. If any of the managers secured a further Rs. 2 million of sales revenue then their bonus would increase by 5% to the upper target of 20%. All three managers have achieved the lower level but not higher or upper level.

ABC Enterprises has been witnessing this situation for the last couple years. Managers have been successful to touch the lower level but unable to touch the higher level. Keeping in view the current system, in the year 2016, managers have tried hard and secured the sales target of Rs. 1.5m even before the year end. By making some extra little effort, all of them managed to secure big clients keeping in mind the upper level is really hard to cross. This, together with a few other problems that have arisen, has made the ABC Enterprises consider whether its current budgeting process could be improved and whether the bonus scheme should also be changed.

Earlier ABC Enterprises have used the fixed budget and now they are considering with a monthly rolling budget, which ABC Enterprises believes will make the budgeting process more relevant and timely and encourage managers to focus on the future rather than the past. It would also prevent the problem of targets being met too early on in the year by the sales managers because the targets would be set for monthly performance rather than annual performance.

Required:

a) How rolling budget could be operated at ABC Enterprises?

b) Discuss the problems associated with introducing rolling budget at ABC Enterprises

c) Discuss issues with current bonus scheme of ABC Enterprises and suggest more alternative scheme in this regard.

d) Discuss any risk associated with using of own excel spreadsheets for developing budgets as in case of above scenario in which accountant is using such practice.

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