1. Budgeting Procedure: (a) Current Budgeting Procedure: Puzzles currently uses incremental budgeting, a budgeting method whereby this year's budget is produced by taking last year's budget as a starting point and adjusting it for changes range of products, volumes and prices that could arise in the new period: The company may have used incremental budgeting until now because: - it had a stable customer base - it worked with a fixed supplier - it used only two materials: wood and leather. It appears that the business might not have experienced many changes in circumstances and, therefore, a budgeting method that produced a stable, simple and easily understandable budget might have been appropriate. However, this procedure may no longer be appropriate for Puzzles for the following reasons: - incremental budgeting is based on a base rooted in the past and possible inefficiencies may be perpetuated - the budget base could become obsolete and not linked to activities Currently conducted by Puzzles, for example, the industry might have changed between 1990 and 2003 - since it assumes business practices will remain the same, there is no incentive to increase efficiency by reducing costs and increasing quality. (b) Implications for a long-term contract with the American channel: Because this is the first time that Puzzles will work with the American channel, the budgetary allocations will not be representative of the period to come. Thus, the following budgetary implications need to be considered: Contract size: Providing furniture for 20 to 50 pubs will impact the spending target and production capacity. Resources needed: Materials required by the American chain could be other than wood... ... middle of paper......efits are not achieved overnight as it requires a culture change business.5. Motivation issues: All Puzzles employees should receive a reward when they meet their monthly goals, not just sales reps. Budgets other than the sales budget are important and therefore all employees must be motivated to achieve them. There must be fairness and perceived fairness. Additionally, puzzles should allow employees to participate in setting their own goals. The advantages of this approach are: increased motivation of employees because they feel more committed to the objectives - provision of specialized knowledge because only employees have the special knowledge necessary to set objectives - increased knowledge of employees on the needs and objectives of the company. Finally, bonuses should not be the only type of bonus. reward because we are all different individuals with different needs and motivations.