The basic problem in this situation was that division management failed to take its manage- ment accounting system into consideration when it implemented a new manufacturing sys- tem. The division wanted to minimize the costs associated with the inventory of component parts used to manufacture the transmissions, in the belief that this would lower the overall costs of production. Parts were not to arrive at the place where they were needed until just before they were actually used in production. Only the exact number of parts that were needed at the time were to be manufactured. Problems arose when the division attempted to operate the new manufacturing system in conjunction with the old managerial accounting system. The old accounting system was ill suited to the new manufacturing system because the way in which it measured departmental perfor- mance was not aligned with the desired performance under the new manufacturing system. The old accounting system had measured the efficiency of each individual department in making the individual parts of the transmissions, not the overall cost of making the transmissions. Efficiency was defined as the number of parts made per labor hour used. Un- der the old system, departments were evaluated in terms of cost per component manufac- tured, with lower being considered better. Each department therefore had an incentive to make as many parts as possible during a given period of time. The result was that some departments made parts faster than they could be used in manufacturing. Thus, excess parts often accu- mulated at various stages in the production process. This resulted in a costly buildup of in- ventory awaiting further processing. Despite the training on the goals of the new manufacturing system, the department man- agers continued to act as they had under the old system, making as many parts as possible. This meant that the expected savings in inventory costs were not realized. Only after man- agement recognized the problem and changed the managerial accounting system to one that recognized the reduction in inventory cost achieved by making only what was needed at the time did the managers' behavior become aligned with the division's goals. Perhaps the most important lesson to learn from this situation is that human beings respond to the way they are measured. Even though the department managers knew that they were supposed to re- duce production to the level required for current needs, they continued to produce as much as possible to make their accounting reports look better. It is important to ensure that ac- counting systems used to measure human performance are aligned with corporate goals and objectives.