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 adapting it to changes in the product mix, volumes and prices that could occur in the new period: So far the company may have used an incremental budget because: - it has a stable customer base - it has worked with a fixed supplier - it has only used two materials: wood and leatherIt appears that the company may not have experienced many changing circumstances and therefore, a budgeting method that produces a stable, simple and easily understandable budget may have been appropriate. However, this procedure may no longer be appropriate for Puzzles for the following reasons: - the incremental budget is based on a base rooted in the past and possible inefficiencies could perpetuate - the budget base could become obsolete and may not be related to the current activities carried out from Puzzles, for example the industry may have changed from 1990 to 2003 - as it assumes that business practices will remain the same, there is no incentive to increase efficiency by reducing costs and increasing quality(b) Implications for contracting a long term with the US chain: Since it is the first time that Puzzles will work with the US chain, in the past the budget allowances will not be representative of the next period. Therefore, the following budgetary implications should be considered: Contract size: Providing furniture for 20-50 pubs will impact spending target and production capacity. Resources needed: The materials required by the US chain may be other than wood... ...middle of paper ...profits are not achieved overnight as a change in company culture is required.5. Motivational Issues: All Puzzles employees should receive a reward when they reach monthly goals, not just sales reps. Budgets other than sales are important and therefore all employees should be motivated to achieve them. There should be fairness and perceived fairness. Additionally, puzzles should allow employees to participate in setting their own goals. The advantages of this are: - increased motivation of employees as they feel more committed towards the objectives - contribution of specialized knowledge as only employees have the specific knowledge needed to set objectives - increased knowledge of employees about the needs and objectives of the company Finally , bonuses should not be the only type of reward as we are all different individuals with different needs and impulses.