Brian Catchpole is the manager of the rubber hose department of the BBR Company. His department manufactures
Question:
Brian Catchpole is the manager of the rubber hose department of the BBR Company. His department manufactures hose of a single quality, although the lengths and specific nozzle attachments comply with individual customers' instructions. The department's workforce consists of 25 people, of whom 5 are supervisors reporting directly to Brian.
Just over a year ago, Brian returned from a course on managerial decision making convinced that he should involve his supervisors more in departmental decisions. He was certain that the standards needed revising and gave the supervisors as a group the chance to discuss and decide what the new performance standards should be. To his surprise, the group argued that the standards were too tight. After extensive discussion with the head office staff, Brian gained approval for a 10% reduction in the standards which the supervisors accepted.
The financial results using the new standards have just become available for the year ended 31 October 1985:
Overheads include all factory, selling and administration costs, and are applied on the basis of standard direct labour hours. All the hose produced during the year is sold, and no inventory exists as at 31 October 1985. During the year, the sales have been greater than anticipated in the budget, but this is regarded as a temporary fluctuation.
Required:
(a) Prepare a statement analysing the differences between actual and budgeted costs and explain the most important of them.
(b) Would you recommend that Brian continues to allow the supervisors to set standards in this situation?
(c) Outline the motives individuals may generaIly have to bias budgets and steps that may be taken to counter bias.
(d) What changes in the overall design of the AIS might you recommend?
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