Annual sales for automobiles produced by Meador, Inc., are in the range of $40-$50 million;

annual sales increases for the past four years have averaged 6 percent. More than 800 persons are employed including national account salespersons and traveling sales representatives.

The home office and production plant are located in Grand Rapids, Michigan, and all products are distributed in the western United States.

Marketing personnel pride themselves on their ability to convince management that additional varieties and features on their automobiles should be made available to the public. Thus, consumers now have an extensive range of options available.

Management contacted consultants to evaluate the plant to determine if newer technology would be cost effective. The consultants found a snake-type production process that fails to follow straight-line flows. They also pointed out several areas where robotics would be appropriate; however, management believes that it should approach this environment very.

slowly and has tentatively decided to install robotics to do a simple welding process, rather than utilize robots in the more complex painting and testing areas.

The consultants also were amazed at the vast amount of inventory Meador carries. In fact, the consultants summarized their feelings to top management in the following remark:

“Inventory is evidence of all management’s problems.” The consultants suggested management adopt a just-in-time (JIT) inventory system. However, Meador’s conservative management ignores this suggestion on the basis that their suppliers are entirely too unreliable and they don’t want to miss a sale.

Meador uses a plantwide overhead rate applied on the basis of direct labor. Overhead is allocated to cost centers and then production departments assign product costs to products.

Required:

a. What major topics should be addressed in the company’s strategic planning sessions ignoring whether the new technology is installed?

b. Why did you select the topics indicated in Requirement a?

c. What initial specific procedure will be followed each year in developing the master budget?

Indicate the factors that will impact on this beginning budgeting step.

d. What is the impact on budget procedures of having so many options available for consumers?

e. What will be the effect on the following if the expensive new technology is correctly installed and implemented?

(1) Labor and factory overhead budgets.

(2) Product quality.

f. What is the meaning of the consultant’s statement regarding inventory being evidence of management’s problems?

g. What is your reaction to management’s decision regarding JIT? What do you see as a solution to their real problem?