Let's face it$,$ Lew. Our new responsibility accounting system is in trouble. As far as $1$ can tell, Frank $[$Baum$,$ Bar$$a$\text{'}$s president$]$ doesn't use the reports in any meaningful way. In fact, he told me this afternoon that he finds the reports useless. He said that the variances from budget always seem to be large but there's always a good explanation. More importantly, Frank says that some divisions are showing favorable variances when he knows they're doing a poor job!

Hank Andersen, Controller of Bar$$a Products, S$.$A$.,$ was speaking to Lew Carroll, one of his deputies. Mr$.$ Carroll had come to Bar$$a three years before, from a large industrial company where he had been a budget analyst in one of the divisions. He was responsible for developing and installing the present responsibility accounting system. The system had gone into effect $18$ months ago, and for the first year, it was considered experimental. About four months ago, it had become fully operational, and now Mr$.$ Baum was quesstioning its utility. Mr$.$ Andersen evidently was agreeing. Mr$.$ Carroll was confused:

I don't understand, Hank. The system is like the one $1$ used at IP $[$Industrial Products$]$ and it worked really well there. If a manager deviated from the budget, he or she had to have a really good explanation, and, even then, there were consequences.

Mr$.$ Andersen responded:

Well, it may have worked af IP$,$ but it isn't working here. I'll arrange for you to talk with Frank about it$.$ Then, I want you to figure out how to make the system work better.

BACKGROUND

Bar$$a Products began during World War II as a family$-$owned manufacturer of cotton textiles for the military. The original plant was located in the town of Sitges, just south of Barcelona. A few years after the war, the family sold the company. The new owners renovated the plant, built a knitting plant nearby, end purchased a woolen plant. Barca's annual profit the following year was $3$ million on a sales of about $28$ million. ${?}^1$

During the next few years, sales increased but profits declined. Some $20$ years ago, the owners appointed Mr: Baum, who had a reputation as a no$-$nonsense manager skilled at turnarounds, as CEQ Under his leadership, sales in the three core divisions $($cotton$,$ knitted goods, and woolens$)$ grew. Shortly thereafter, the company added two new divisions: artificial fiber products and artificial leather. At present, Bar$$a$\text{'}$s sales were approaching $100$ million a year. However, as Exhibit $1$ shows, after tax profits still were only about $3$ million.

Financial amounts have been converted from Pesetas to Euros where appropriate.The corporate budget department reviewed this report, made any needed corrections, and distributed copies to the president and the board. The department also prepared a brief analysis of each report, indicating points that should be brought to the board's and senior management's attention. In addition, the department prepared a "Company Profit Budget Report"$($a consolidation of the five operating divisions$)$ which it sent to Mr$.$ Baum and the board.

MR$.$ BAUM'S VIEWS

During his meeting with Mr$.$ Carroll, Mr$.$ Baum expressed considerable dissatisfaction with the responsibility accounting system:

Your monthly reports are just about worthless to me$,$ Lew. For one thing, we can't budget sales revenues very accurately, so all the reports show large revenue variances. But whiat do I do about them? Either volume has been higher or lower than budget or prices have gone up or down. Also, once a division starts having problems with sales or prices, it might need several months to fix the problem. The division might have to change its product line, wait until competitors get tired of losing money and raise prices, or wait until the economy improves. In other words, I look at the report and say $"$so what?"

Another thing$-$I really get no surprises from the reports because I know when something has happened long before I get the report. I get weekly sales reports from each division and I can easily see which divisions are having trouble with volume or prices. Costs don't usually vary much from month to month. The few times that our costs have gone up temporarify, I've known it almost immediately. What I need is a report that will tell me what's going to happen, not one that tells me what I've known for several weeks.

There's a third thing that bothers me$.$ I know for a fact that John Bennett $($the DGM of Artificial Leather$)$ has been doing a poor job with that division this year, even though his financial performance is the best of the five divisions. Because of quality problems, he lost our best customers in the fumiture business. Yet, because automobiles are selling far better than we anticipated, he shows a large favorable sales volume variance. On the othier hand my most capable manager shows the poorest financial performance.

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Please helpnthis is our preeseen casestudy fr finals from chapter $12$ responsibilty accounting please help with possible questions with answers