Ashley Finn is a new production manager. After a great deal of effort, including considerable market research, she completes her budget and submits it to her boss, Keith Payne. Without even looking at it, he asks her what her "fudge factor" was, and which items contained the most slack. Ashley, very surprised, responds that she doesn't use any "fudge factor," and that all her figures are honest. Mr. Payne counters by asking her how she would respond if she had to cut about 20% from her budget, as it is. He tells her that most budgets are trimmed in committee, and she had better be ready. He returns the budget to her, and tells her to come back with something reasonable.

Required:

1.Is it ethical to build slack into a budget? Explain.

2.Was it ethical for Mr. Payne to refuse to accept a budget without slack? Briefly explain.

S-A E 214(Communication)

At Boulder Industries, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Bart Gray, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process.

Required:

You are the accounting manager. Write a memo to Mr. Gray. Explain why the ending inventory figure should be extremely accurate, with as little slack as possible.