Question
The director of marketing for OPQ Computer Co., Terry, had the following discussion with the company controller, CJ., on October 20 of the current year:
The director of marketing for OPQ Computer Co., Terry, had the following discussion with the company controller, CJ., on October 20 of the current year:
Terry: CJ, it looks like I'm going to spend much less than indicated on my October budget.
CJ: I'm glad to hear it.
Terry: Well, I'm not sure it's good news. I'm concerned that the president will see that I'm under budget and reduce my budget in the future. The only reason that I look good is that we delayed an advertising campaign due to the current economic situation. Once the campaign hits, I am sure my actual expenditures will go up. You see, we are also having our sales convention in the near future. Having the advertising campaign and the convention at the same period is going to kill my next period numbers.
CJ: I don't think that's anything to worry about. We all expect some variation in actual spending month to month. What's really important is staying within the budgeted targets for the year. Does that look as if it's going to be a problem?
Terry: I don't think so, but just the same, I'd like to be on the safe side.
CJ: What do you mean?
Terry: Well, this is what I'd like to do. I want to pay the convention-related costs in advance this month. I'll pay the hotel for room and convention space and purchase the airline tickets in advance. In this way, I can charge all these expenditures to October's budget. This would cause my actual expenses to come close to budget for October. Moreover, when the big advertising campaign hits in the next period, I won't have to worry about expenditures for the convention on my budget as well. The convention costs will already be paid. Thus, my next period's expenses should be pretty close to budget.
CJ: I can't tell you when to make your convention purchases, we are in an uncertain era, but I'm not too sure that next period's items should be expensed in October's budget.
Terry: What's the problem? It looks like "no harm, no foul" to me. I can't see that there's anything wrong with this-It's just smart management.
How should CJ respond to Terry's request to expense the advanced payments for the convention-related costs against October's budget?
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