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Manufacturing Budget Analysis
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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.

Review the case. Respond to the following:

  • Identify the problems that appear to exist in Ferguson & Son Manufacturing Company's budgetary control system and explain how the problems are likely to reduce the effectiveness of the system.
  • Explain how Ferguson & Son Manufacturing Company's budgetary control system could be revised to improve its effectiveness.
  • Explain how the use of an activity-based costing system could change the results of the budget, if utilized.

  • As stated in the case, many employees have “quit trying” and have altered behavior on the job. Provide specific ways for how one would use a budget to change employee behavior and align goals in the organization.

 

  • Explain how goal alignment can improve profitability and overall return to the shareholders of the company.

 

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

 

Write a 8 page report in Word format. Apply APA standards to citation of sources. 

 

For convenience purposes, please do not accept question, if cannot meet the swift dateline of . Thank you kindly!!!!!

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Manufacturing Budget Analysis
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Manufacturing Budget Analysis In this case study, Ferguson and Son’s Manufacturing Company has some budgetary control system issues; we are going to assist in finding solutions to rectify them. We will then provide an explanation on how the problems are likely to reduce the effectiveness of the system. Furthermore; show solutions on how to administer four key processes underlined in procedures for improving budgetary control. There are specific characteristics of a good budgetary control system. Within this system, there are monetary and non-monetary incentives. These incentives can positively or negatively affect employee behavior. Managers are highly encouraged to use an activity-based costing system, because this could change the results of the budget, if utilized properly. In addition, we will touch on participative budgets and their benefits rather than forcing on imposed budgets from top management. Also, as stated in the case, many employees have “quit trying” and have altered behavior on the job. We then will provide specific ways for how you would use a budget to change employee behavior and align goals in the organization. Explain how goal alignment can improve profitability and overall return confidence and synergy to the shareholders of the company. Finally, discuss synthesize data to explain the concept of ROI and describe how the use of an activity-based costing system can improve the company’s ROI and the potential impact on free cash flow. Identify the problems that appear to exist in Ferguson & Son Manufacturing Company's budgetary control system and explain how the problems are likely to reduce the effectiveness of the system. The budgetary control system is imperfect; its flaws reduce its effectiveness. In addition, such flaws can also interfere with performance. Some of the short-comings are explained below: a) The Lack of Coordinated Goals: Emory had been led to have confidence in high quality output is the goal, it now appears low cost procedures are more important. Employees are not aware of what the goals are and cannot determine which direction will further the company’s goal. b) The Influence of Uncontrollable Factors: Actual performance relative to the proposed budget is greatly predisposed by uncontrollable factors. Thus the variance reports provide much disservice and little purpose for performance evaluation or for locating controllable factors to improve performance. As a result, this budgetary system lacks the ability to encourage coordination amongst departments. c) The Short Sited Perspectives: Monthly evaluations and budget tightening basically result in a very short-sited perspective. This results in inappropriate stress placed on employees and will demotivate. d) The System Does Not Motivate: The budgetary system appears to solely focus on performance evaluation even-though the majority of the essential factors for that driver is missing. The focus on evaluation and the weakness ignore an important benefit of the budgetary system which is to primarily motivate employees. Improving Budgetary Control According to Garrison, R., Noreen, E., Brewer, P. (01/2014), there are four processes in which improvements in the budgetary control system should correct the flaws in the lack of coordinated goals, influence uncontrollable factors, the short-sited perspective, and the non-motivating system should; First, more clearly defined the company objectives should be established. Relate clear beginning and ending objectives prior to starting on a plan or risk leaving the door open for project managers and participants to make assumptions. Define the chain of communication required when changes occur so that all stakeholders know where the project is heading. Second, develop an accounting reporting system that b...
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