Question

In: Accounting

CJ Corporation manufactures steel rebar for use in construction. The accounting staff is currently preparing next...

CJ Corporation manufactures steel rebar for use in construction. The accounting staff is currently preparing next year’s budget. Bob Johnson is new to the firm and is interested in learn-ing how this process occurs. He has lunch with the sales manager and the production manager to discuss further the planning process. Over the course of lunch, Bob discovers that the sales manager adjusts sales projections between a flexible amount and a static amount based on which will reflect the lowest variance from actual results. The production manager does the same for cost estimates. Both managers’ year-end bonus is determined based on how low of a variance is achieved. When Bob asks about why they adjust their projections between flexible and static budgets, the response is simply that everyone around here does it. Required

a. What do the sales and production managers hope to accomplish by their methods?b. How might this backfire and work against them?c. Are the actions of the sales and production managers unethical

Solutions

Expert Solution

Analyzing the variance calculated from actual figures and static budget figures is one way of doing it. However, the most logical way is to compute the flexible budget based on actual production and then doing a 2 way analysis- One difference between static budget and flexible budget- Uncontrollable variance, Two- Difference between flexible budget and actual results- Controllable variance.

Such analysis gives the clear picture on how efficient they are and whether they are able to control costs.

The variance from static budget and actual might result in favorable variance, but this does not necessarily mean they have controlled costs. the lower costs may be achieved due to decrease in production, and not that they have controlled costs. In this way, such way analysis would back fire the sales and production managers and work against them. However, the managers would be more aware of such variance and would try hard to control such costs.

It is absolutely ethical to show the variance in the above mentioned format. Rather, this presentation shall be encouraged across all industries. This method gives an insight for the management to achieve cost efficiency.


Related Solutions

Anderson Metals manufactures and sells #3 steel rebar that is used in the construction of slabs...
Anderson Metals manufactures and sells #3 steel rebar that is used in the construction of slabs and driveways. The steel bar not only strengthens the finished concrete product, but it also has unique properties such that its temperature related expansion and contraction matches that of concrete. The product is manufactured and sold in 20' long "sticks." The product is generally produced and sold to match customer demand, and there is not a significant amount of finished goods inventory at any...
Anderson Metals manufactures and sells #3 steel rebar that is used in the construction of slabs...
Anderson Metals manufactures and sells #3 steel rebar that is used in the construction of slabs and driveways. The steel bar not only strengthens the finished concrete product, but it also has unique properties such that its temperature related expansion and contraction matches that of concrete. The product is manufactured and sold in 20' long "sticks." The product is generally produced and sold to match customer demand, and there is not a significant amount of finished goods inventory at any...
Nucor Corporation manufactures and sells steel and steel products. It operates in three segments: Steel Mills,...
Nucor Corporation manufactures and sells steel and steel products. It operates in three segments: Steel Mills, Steel Products, and Raw Materials. The Steel Mills segment produces hot-rolled, cold-rolled, and galvanized sheet steel products; plate steel products; wide-flange beams, beam blanks, and H-piling and sheet piling products; bar steel products, such as blooms, billets, concrete reinforcing and merchant bars, and special bar quality products. It also engages in the steel trading and rebar distribution businesses. Nucor has a capital budget of...
1) Lasso Corporation manufactures a variety of appliances which all use Part B89. Currently, Lasso manufactures...
1) Lasso Corporation manufactures a variety of appliances which all use Part B89. Currently, Lasso manufactures Part B89 itself. It has been producing 10,000 units of Part B89 annually. The annual costs of producing Part B89 at the level of 10,000 units include the following: Direct materials $3.00 Direct labor $8.10 Variable manufacturing overhead $4.20 Fixed manufacturing overhead $3.20 Total cost $18.50 All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from...
What are the best sources for labor and equipment unit prices to use in preparing construction...
What are the best sources for labor and equipment unit prices to use in preparing construction cost estimates?
Eye Trendy Corporation is a distributor of frames for sunglasses. The company’s controller is currently preparing...
Eye Trendy Corporation is a distributor of frames for sunglasses. The company’s controller is currently preparing a budget for the third quarter of the year. The following information is from company’s financial records: Projected Sales July 3,120 units August 2,000 units September 2,640 units October 3,000 units • Selling price is RM25 per unit • Collections from customers are normally 70 per cent in the month of sale, 20 per cent in the month following sale, and 9 per cent...
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2019. The accounting...
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2019. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD...
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2019. The accounting...
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2019. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD...
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2019. The accounting...
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2019. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD...
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2014. The accounting...
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2014. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT