Reference no: EM132856999

Question - Ram, new-accounts manager at East Bank of Clarion, has been asked to project how many new accounts she will open during 20x2. The local economy has been growing, and the bank has experienced a 10% increase in the number of new accounts over each of the past five years. In 20x1, the bank had 10,000 accounts.

Ram 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).

Ram believes that the local economy will continue to grow at the same rate in 20x2 as it has in recent years. She decided to submit a projection of 800 new accounts for 20x2.

Your consulting firm has been hired by the bank president to make recommendations for improving the bank's operation. Write small note  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.