Dollbee Electronics are manufacturers of high quality audio amplifiers and loudspeakers. The company has recently been taken
Question:
Dollbee Electronics are manufacturers of high quality audio amplifiers and loudspeakers.
The company has recently been taken over by Electronics International Inc.
(EII) a multi-national company operating on all continents. Hyram K. Cross of EII has been sent to review the budgeting and reporting systems used by Dollbee and finds that monthly budgets are prepared for each department. He asks to see the last budget statement for a typical department and is shown the statement for the Loudspeaker Department; whose manager is Jack Bell.
The budget statement for the last period was:
Hyram found that the budget was based on 12,000 units with a standard labour content of 2.85 hours and went to Jack Bell to find out his reactions to the budget and what use he makes of the budgeting system.
To Hyram’s surprise, Jack Bell was not enthusiastic about the system and thought it of little value to a departmental manager. Jack said, ‘It was introduced about a year ago by consultants who only spent about 10 minutes with me, then the budgeting system was introduced without any explanation. Frankly I think they put in a ready made system developed elsewhere. It doesn’t seem to help me to run my department. For example, last month’s statement showed a positive variance on profit yet I know costs have risen, though nothing like as much as the statement shows, so I would have expected to be down on budgeted profit yet according to this I am £3000 up! It just doesn’t make sense so I tend to ignore it altogether.’
After leaving Jack Bell, Hyram visited several other departments and had similar reactions from the departmental managers. Hyram decided, as a matter of urgency, to try to make the budgeting system more useful and more acceptable to the departmental managers.
Questions:-
1. What behavioural problems are brought out in the case?
2. What was wrong with the approach of the consultants who installed the system?
3. Do you think the present system fulfils the behavioural objectives of budgetary control systems? If not, why not?
4. Criticise the way the budget statement has been prepared.
5. Redraft the budget statement in a more informative manner and give an explanation 6. What steps do you think Hyram should take now?
Step by Step Answer:
