Question Details

Accounting 101 PART 8 BUDGETARY CONTROL AND
RESPONSIBILITY ACCOUNTING

SHORT-ANSWER ESSAY QUESTIONS
S-A E  140
The master budget and flexible budgets are important aids to management in performing the management functions of planning and control. Briefly describe how planning and control are facilitated by preparing a master budget and flexible budgets.  How are these two types of budgets interrelated with planning and control?


S-A E  141
Managers are motivated to accomplish objectives if they feel that their efforts will be fairly evaluated.  Explain why an organization may use different bases for evaluating the performance of managers of different types of responsibility centers.


S-A E  142	(Ethics)
Edwards Corporation evaluates its managers based on return on investment (ROI).  Kim Tilley and Sara Trane, managers of the electronics and housewares departments respectively, have recently suffered from declining profits in their departments. Over lunch, they discuss the problem, and how they could improve performance. Most of the discussion centers around ways to increase sales.  Near the end of the lunch period, however, Sara remarks that there are two components to consider, and that they have considered only one. She wonders whether there is some way to reduce investment, and by decreasing the denominator of the ROI fraction, to improve the final result.

S-A E  142  (cont.)
Back at work, Kim continues to mull over Sara's remarks.  She decides to pursue the matter further, and before the end of the quarter she has sold quite a bit of older equipment and replaced it with equipment obtained with a short-term lease.  Her performance, measured by ROI,  is markedly improved, although sales continue to be disappointing.

Required:
1.	Who are the stakeholders in this situation?
2.	Is Kim's action ethical?  Briefly explain.



S-A E  143	(Communication)
Clara County 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, Earl Linton, a production supervisor, complained to Ann Royer, accounting manager, about the flexible 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 we sold 8,000 units, I was $10,000 under my budget, and then you all blow me out of the water with your report that I actually was $5,000 over, because sales were slow. 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 unit sales, I should spend about $82,000.  I spend less, and get an unfavorable budget report.  What gives?"

Required:
Write a short memo to respond to Mr. Linton.