Fixing Responsibility (Adapted from a description by Harold Bierman, Jr.)

The City of Mountainvale had hired its first city manager four years ago. She favored a “management by objectives” philosophy and accordingly had set up many profit responsibility centers, including a sanitation department, a city utility, and a repair shop.

_ For many months, the sanitation manager had been complaining to the utility manager about wires being too low at one point in the road. here was barely clearance for large trucks. The sanitation manager asked the repair shop to make changes in the clearance. The repair shop manager asked, 0 “Whom should I charge for the $2,000 cost of making the adjustment, the sanitation or the utility department?” Both departments refused to accept the Ml charge, so the repair department refused to do the work.

Late one day the top of a truck caught the wires and ripped them down.

The repair department made an emergency repair at a cost of $2,600. Moreover, the city lost $1,000 of utility reveriue (less variable costs) because of the disruption of service.

Investigation disclosed that the truck had failed to clamp down its top properly. The extra two inches of height caused the catching of the wire.

ts Both the sanitation and utility managers argued strenuously about whether

— they should bear the $3,000 cost. Moreover, the utility manager demanded re-

, imbursement from the sanitation department of the $1,000 of lost contribution.

required | As the city controller in charge of the responsibility accounting system, how would you favor accounting for these costs? Specifically, what would you do next? What is the proper role of responsibility accounting in determining the blame for this situation?

 lop4