Question

Should functional areas be expected to cut their cost when sales volume falls below budget? Explain your answer

Answer 1

In this case, cost of functional areas should not be affected as budgets are made for a smaller duration i.e. a year or quarter and steps taken to reduce the cost of the function might take years to come into effect. However, if there are sufficient funds with the function for the target sales or the function is having costs above the budget then the cost of these functions can be reduced. The costs thus saved can be used to market the product to improve the sales.