Reference no: EM132515986

In 2019, Terry Pandemic, new-accounts manager at Covid Bank, had been asked to project how many new accounts she will open during 2020. The local economy had been growing, and the bank had experienced a 10% increase in the number of new accounts over each of the past five years. In 2019, the bank had 10,000 accounts.

Pandemic is paid a salary, plus a bonus of $20 for every new account above the budgeted amount. Thus, if the annual budget calls for 1,000 new accounts, and 1,080 new accounts are obtained, her bonus will be $1,600 (80 ´ $20).

Pandemic believes that the local economy will continue to grow at the same rate in 2020 as it has in recent years. She decided to submit a projection of 700 new accounts for 2020.

Required:

You were hired as a consultant by the bank president to make recommendations for improving the bank's operation.

Question a) Write memorandum to the president defining and explaining the negative consequences of budgetary slack. Also discuss the bank's bonus system for the new-accounts manager and how the bonus program tends to encourage budgetary slack. Recommend measures to correct the projections.

Question b) With the Covid 19 pandemic happening in the 1st half of 2020, how will the budget be changed? Draft a new memorandum (dated April 1, 2020) to the bank president regarding the effects of the pandemic to the bank's operations.