le cases are available with McGraw-Hill\'s Connect Accounting. Evaluating a Comp
ID: 2549000 • Letter: L
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le cases are available with McGraw-Hill's Connect Accounting. Evaluating a Company's Budget Procedures [LO8-1) CASE 8- and Jim Morris strolled back to their plant from the administrative offices of Ferguson 10om a Manufacturing Company. Tom is manager of the machine shop in the company's factory Emory er of the equipment maintenance department. t attended the monthly performance evaluation meeting for plant department tings had been held on the third Tuesday of each month since Robert Ferguson The men had jus t's son, had become plant manager a year earlier r, the president As they were walking, Tom Emory spoke: "Boy, I hate those meetings! I never know whether he worst. If the accountants say I saved the company a dollar, I'm called Sir; but if I spend even denartment's accounting reports will show good or bad performance. I'm beginning to ex a litle too much-boy, do I get in trouble. I don't know if I can hold on until I retire." Tom had just been given the worst evaluation he had ever received in his long career with Ferguson & Son. He was the most respected of the experienced machinists in the company. He had been with Ferguson& Son for many years and was promoted to supervisor of the machine shop when the company expanded and moved to its present location. The president (Robert Ferguson, S) had often stated that the company's success was due to the high-quality work of machinists like Tom. As supervisor, Tom stressed the importance of craftsmanship and told his workers that he wanted no sloppy work coming from his department. When Robert Ferguson, Jr., became the plant manager, he directed that monthly performance comparisons be made between actual and budgeted costs for each department. The departmental budgets were intended to encourage the supervisors to reduce inefficiencies and to seek cost ton opportunities. The company controller was instructed to have his staff "tighten reduc- " the budget slightly whenever a department attained its budget in a given month; this was done to reinforce the plant manager's desire to reduce costs. The young plant manager often stressed the importance of own that he kept a file of these continued progress toward attaining the budget; he also made it kn performance reports for future reference w hen he succeeded his father s conversation with Jim Morris continued as follows: Tom Emory' really don't understand. We've worked so hard to meet the budget, and the minute we do so ghten it on us. We can't work any faster and still maintain quality. 1 think my men are ready to ng. Besides, those reports don't tell the whole story. We always seem to be interrupting the for all those small rush orders, All that setup and machine adjustment time is killing us. And nkly, Jim, you were no help. When our hydraulic press broke down last month, your people Emory: I they ti quit tryi bi ere nowhere to be found. We had to take it apart ourselves and got stuck with all that idle timeExplanation / Answer
Identify the problems that appear to exist in ferguson and son manufacturing company’s budgetary control system and explain how the problems are likely to reduce the effectiveness of the system.
Explain how ferguson and son manufacturing company’s budgetary control system could be revised to improve its effectiveness
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