Assume you are the budget manager at a mid-size manufacturing company. In your role, you review the classification of expenditures as expense or capital and monitor the budget to ensure that there are no overruns.

The last time manufacturing had a budget overrun, the VP and AVP of manufacturing were both dismissed. A business case has been presented to you that appears to be a very lucrative opportunity for the company, however, the company will overrun its expense budget if the project is adopted.

You note that, the capital budget has more than enough left in it to cover both the expense and capital required for project, and cash is cash after all, so the classification has no impact on cash flow. Marketing and manufacturing are really pushing the benefits of this project to the company, and you like to be a team player. Besides the company can always use a boost in its EPS to support its stock price.

You CANNOT address the budget issue by charging the expense against the capital budget and accept the project. What dilemma (if any) is presented? Why? What other alternatives can you think of that could provide a better solution?

From the perspective of the budget manager, convince your team to offer a creative alternative solution. Describe the solution and its merit compared to the first option.