Greg\'s Electronics manufactures circuit boards for computer-controlled applianc
ID: 2466637 • Letter: G
Question
Greg's Electronics manufactures circuit boards for computer-controlled appliances for the home. The sales have been very volatile, sometimes stressing the plant's capacity, and sometimes depressingly slow. During a recent slow period, Larry Flower, a production supervisor, complained to you, the accounting manager, about the budget. "I try as hard as I can to meet the budget," he says, "and then I find out that just meeting the budget's not good enough. Last month, when production kept up with sales and we sold 8,000 units, I thought I was $10,000 under my budget. Then you all blow me out of the water with your report that I actually was $6,400 over budget because sales, and therefore production, was slow at 8,000 units. I thought this responsibility accounting business was supposed to mean we are held accountable just for things we can control. How do we control sales? At the beginning of the year, you gave us all targets. Mine says that for an average month of 10,000 units sales, I should spend about $82,000. I spend less, and get an unfavorable budget report. What gives?
Instructions: Write a formal memo to respond to Mr. Flower.
Explanation / Answer
TO: Mr. Crown
FROM: Kim Maley
RE: Budget results
I appreciate your coming to me with your questions about the budget. I understand that the new procedures can be frustrating, especially when you receive an unfavorable report that you were not expecting.
Actually, the flexible budget does mean that you are held accountable only for the costs that you can control. Last month, we calculated the cost of producing 8,000 units that were actually sold (and not the 10,000 that were estimated to be sold). Your costs were greater than that, although still less than the amount you would have been allowed had the full 10,000 been sold. Please check the individual items on your budget report. We noted which ones exceeded the budget. You can then focus attention on those items for cost control.
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