Writers Den

Tom Emory and Jim
Morris strolled back to their plant from the administrative offices of
Ferguson & Son Manufacturing Company. Tom is manager of the machine shop
in the company’s factory; Jim is manager of the equipment maintenance
department.

The men had just
attended the monthly performance evaluation meeting for plant department
heads. These meetings had been held on the third Tuesday of each month since
Robert Ferguson, Jr., the president’s son, had become plant manager a year
earlier.

As they were walking,
Tom Emory spoke: “Boy, I hate those meetings! I never know whether my
department’s accounting reports will show good or bad performance. I’m
beginning to expect the worst. If the accountants say I saved the company a
dollar, I’m called ‘Sir,’ but if I spend even a little 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 the company 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, Sr.) 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 reduction opportunities. The company
controller was instructed to have his staff “tighten” 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 continued progress toward attaining the
budget; he also made it known that he kept a file of these performance
reports for future reference when he succeeded his father.

Tom Emory’s
conversation with Jim Morris continued as follows:

Emory: I really don’t
understand. We’ve worked so hard to meet the budget, and the minute we do so
they tighten it on us. We can’t work any faster and still maintain quality. I
think my men are ready to quit trying. Besides, those reports don’t tell the
whole story. We always seem to be interrupting the big jobs for all those
small rush orders. All that setup and machine adjustment time is killing us.
And quite frankly, Jim, you were no help. When our hydraulic press broke down
last month, your people were nowhere to be found. We had to take it apart
ourselves and got stuck with all that idle time.

Morris: I’m sorry about that,
Tom, but you know my department has had trouble making budget, too. We were
running well behind at the time of that problem, and if we had spent a day on
that old machine, we would never have made it up. Instead, we made the
scheduled inspections of the forklift trucks because we knew we could do
those in less than the budgeted time.

Emory: Well, Jim, at least
you have some options. I’m locked into what the scheduling department assigns
to me and you know they’re being harassed by sales for those special orders.
Incidentally, why didn’t your report show all the supplies you guys wasted
last month when you were working in Bill’s department?

Morris: We’re not out of the
woods on that deal yet. We charged the maximum we could to other work and
haven’t even reported some of it yet.

Emory: Well, I’m glad you
have a way of getting out of the pressure. The accountants seem to know
everything that’s happening in my department, sometimes even before I do. I
thought all that budget and accounting stuff was supposed to help, but it
just gets me into trouble. It’s all a big pain. I’m trying to put out quality
work; they’re trying to save pennies.

Assignment 2 Grading Criteria

Maximum Points

Identified the problems that appear to exist in the company’s budgetary
control system and explained how the problems are likely to reduce the
effectiveness of the system.

64

Explained how the company’s budgetary control system could be revised to
improve its effectiveness.

64

Explained how the use of an activity-based costing system could change
the results of the budget if utilized.

44

Identified ways of how one can use a budget to change employee behavior
and align goals in the organization and explained how goal alignment can
improve profitability and overall return to shareholders of the company.

44

Synthesized data to explain the concept of ROI, how the use of an activity-based
costing system can improve the company’s ROI, and the potential impact on
free cash flow.

56

Wrote in a clear, concise, and organized manner; demonstrated ethical
scholarship in accurate representation and attribution of sources; and
displayed accurate spelling, grammar, and punctuation.

28

Total:

300