1. DESCRIBE THE STRATEGIC CONTEXT IN WHICH QUINTANA SHOULD JUDGE MUSIMUNDO'S PERFORMANCE. WHAT ARE THE CHARACTERISTICS OF THE ENVIRONMENT IN WHICH MUSIMUNDO COMPETES? WHAT ARE THE STRATEGIC OBJECTIVES OF PEGASUS FOR MUSIMUNDO? HOW DO THESE FACTORS INFLUENCE THE BUDGET PROCESS?Strategic ContextQuintana wants to strategically reward Musimundo store managers for achieving their budget goals; however, some managers were unable to do so at all, and other managers were guaranteed their sales quota. Quintana can correct this situation by changing Musimundo's incentive system. Quintana can use multiple performance measures to reward his managers. These performance measures can be sales based on a flexible budget that looks at historical sales and measures them against current sales. The manager may be compensated for the percentage increase. Quintana can also use a Balanced Scorecard approach for each store. The success of a store can depend on a number of factors beyond sales. These factors could be customer satisfaction surveys, growth within the store, and employee and human resources management. Additionally, for next year, Quintana is expected to implement and/or refine an activity-based budgeting system. Quintana can first assign overhead costs to the cost pools that represent the largest tasks for Musimundo. These costs would be related to the purchase, location and storage of music (music represented 41% of Musimundo's business in 2004). After assigning these overhead costs, costs can be assigned to various retail stores based on their consumption of the good (e.g. the number of musical works they stock and sell). Musimundo's environment Musimundo's environment is threadbare and disproportionately profitable in various regions of Argentina. While Argentina was emerging from the economic crisis, various regions were “catching up” in the field of consumption; however, other regions were not “catching up” or did not have the activity necessary to generate adequate sales. Managers in the most profitable regions were meeting/exceeding their sales goals, while managers in the least active regions were unable to meet their sales goals. These underperforming managers were penalized by a system they neither promoted nor developed. In all likelihood, underperforming managers were disincentivized by unrealistic budget targets for their region, needing further assurance from companies that their vision could be achieved. All retail stores suffered from product shortages, destroying any potential sales they could have achieved. Stores in less popular/populated regions may have earned a reputation for being unreliable and continually out of stock.