Assignment 2: LASA 2—Manufacturing Budget AnalysisTom Emory and Jim Morris strolled back to their...

Question

Assignment 2: LASA 2—Manufacturing Budget AnalysisTom Emory and Jim Morris strolled back to their plant from the administrative offices of Ferguson & Son Manufacturing Company. Tom is manager of the machine shop in the company's factory; Jim is manager of the equipment maintenance department.The men had just attended the monthly performance evaluation meeting for plant department heads. These meetings had been held on the third Tuesday of each month since Robert Ferguson, Jr., the president's son, had become plant manager a year earlier.As they were walking, Tom Emory spoke: “Boy, I hate those meetings! I never know whether my department's accounting reports will show good or bad performance. I'm beginning to expect the worst. If the accountants say I saved the company a dollar, I'm called ‘Sir,’ but if I spend even a little too much—boy, do I get in trouble. I don't know if I can hold on until I retire.”Tom had just been given the worst evaluation he had ever received in his long career with Ferguson & Son. He was the most respected of the experienced machinists in the company. He had been with the company for many years and was promoted to supervisor of the machine shop when the company expanded and moved to its present location. The president (Robert Ferguson, Sr.) had often stated that the company's success was due to the high-quality work of machinists like Tom. As supervisor, Tom stressed the importance of craftsmanship and told his workers that he wanted no sloppy work coming from his department.When Robert Ferguson, Jr., became the plant manager, he directed that monthly performance comparisons be made between actual and budgeted costs for each department. The departmental budgets were intended to encourage the supervisors to reduce inefficiencies and to seek cost reduction opportunities. The company controller was instructed to have his staff “tighten” the budget slightly whenever a department attained its budget in a given month; this was done to reinforce the plant manager's desire to reduce costs. The young plant manager often stressed the importance of continued progress toward attaining the budget; he also made it known that he kept a file of these performance reports for future reference when he succeeded his father.Tom Emory's conversation with Jim Morris continued as follows:Emory:I really don't understand. We've worked so hard to meet the budget, and the minute we do so they tighten it on us. We can't work any faster and still maintain quality. I think my men are ready to quit trying. Besides, those reports don't tell the whole story. We always seem to be interrupting the big jobs for all those small rush orders. All that setup and machine adjustment time is killing us. And quite frankly, Jim, you were no help. When our hydraulic press broke down last month, your people were nowhere to be found. We had to take it apart ourselves and got stuck with all that idle time.Morris:I'm sorry about that, Tom, but you know my department has had trouble making budget, too. We were running well behind at the time of that problem, and if we had spent a day on that old machine, we would never have made it up. Instead, we made the scheduled inspections of the forklift trucks because we knew we could do those in less than the budgeted time.Emory:Well, Jim, at least you have some options. I'm locked into what the scheduling department assigns to me and you know they're being harassed by sales for those special orders. Incidentally, why didn't your report show all the supplies you guys wasted last month when you were working in Bill's department?Morris:We're not out of the woods on that deal yet. We charged the maximum we could to other work and haven't even reported some of it yet.Emory:Well, I'm glad you have a way of getting out of the pressure. The accountants seem to know everything that's happening in my department, sometimes even before I do. I thought all that budget and accounting stuff was supposed to help, but it just gets me into trouble. It's all a big pain. I'm trying to put out quality work; they're trying to save pennies.Review the case. Respond to the following:Identify the problems that appear to exist in Ferguson & Son Manufacturing Company's budgetary control system and explain how the problems are likely to reduce the effectiveness of the system. (approximately 1 page)Explain how Ferguson & Son Manufacturing Company's budgetary control system could be revised to improve its effectiveness. (approximately 1–2 pages)Explain how the use of an activity-based costing system could change the results of the budget, if utilized. (approximately 1 page)As stated in the case, many employees have “quit trying” and have altered behavior on the job. Provide specific ways for how you would use a budget to change employee behavior and align goals in the organization. Explain how goal alignment can improve profitability and overall return to the shareholders of the company. (approximately 1 page)Synthesize data to explain the concept of ROI and describe how the use of an activity-based costing system can improve the company’s ROI and the potential impact on free cash flow. (approximately 1 page)Write a 5–6-page report in Word format. Apply APA standards to citation of sources. Use the following file naming convention: LastnameFirstInitial_M6_A2.doc.BySunday, April 14, 2013, deliver your assignment to theM6: Assignment 2 Dropbox.This assignment is worth 300 points and will be graded using a rubric.Downloadand read the rubric to understand the expectations.For assistance with any problems you may have when completing this assignment—OR—to offer your assistance to classmates, please use theProblems and Solutions Discussionarea located through the left side navigation link.LASA
2—Manufacturing Budget Analysis

NOTE: If a component is
absent, student receives a zero for that component.

Assignment
 Components

Unsatisfactory
 (C- to C)

Emerging
 78
 – 82%
 (C+
 to B-)

Proficient
 83
 – 89%
 (B
 to B+)

Exemplary
 90
 – 100 %
 (A-
 to A)

Score
 
 To
 calculate score:
 (%
 / 100) x max pts.
 e.g.
 (80%
 / 100) x 12 = 9.6

Identify the problems that appear to exist in the company’s
 budgetary control system and explain how the problems are likely to reduce
 the effectiveness of the system.
 (CO 3)

Identification of the problems that appear to exist in the company’s
 budgetary control system is mostly unclear and incorrect.
 
 Explanation of how the problems are likely to reduce the
 effectiveness of the system is mostly unclear and incorrect.

Identification of the problems that appear to exist in the company’s
 budgetary control system is only partially unclear and incorrect.
 
 Explanation of how the problems are likely to reduce the
 effectiveness of the system is only partially unclear and incorrect.

Identification of the problems that appear to exist in the company’s
 budgetary control system is clear and correct.
 
 Explanation of how the problems are likely to reduce the
 effectiveness of the system is clear and correct.

Identification of the problems that appear to exist in the company’s
 budgetary control system is clear and correct.
 
 Explanation of how the problems are likely to reduce the
 effectiveness of the system is clear and correct.
 
 In addition, several insightful examples are provided.

/66 pts.

Explain how the company's budgetary control system could be
 revised to improve its effectiveness.(CO 3)

Explanation of how the company's budgetary control system
 could be revised to improve its effectiveness is mostly unclear, incomplete,
 and incorrect.

Explanation of how the company's budgetary control system
 could be revised to improve its effectiveness is only somewhat unclear,
 incomplete, and incorrect.

Explanation of how the company's budgetary control system
 could be revised to improve its effectiveness is clear, complete, and
 correct.

Explanation of how the company's budgetary control system
 could be revised to improve its effectiveness is clear, complete, and
 correct.
 
 In addition, several insightful examples are provided.

/66 pts.

Explain
 how the use of an activity-based costing system could change the results of
 the budget if utilized. 
 (CO 3,4)

Explanation
 of how the use of an activity-based costing system could change the results
 of the budget if utilized is mostly unclear, incomplete,
 and incorrect.

Explanation
 of how the use of an activity-based costing system could change the results
 of the budget if utilized is only somewhat
 unclear, incomplete, and incorrect.

Explanation
 of how the use of an activity-based costing system could change the results
 of the budget if utilized is clear, complete, and correct.

Explanation
 of how the use of an activity-based costing system could change the results
 of the budget if utilized is clear, complete, and correct. 
 
 In addition, several insightful examples are provided.

/44 pts

Identify
 ways of how one can use a budget to change employee behavior and align goals
 in the organization. 
 
 Explain
 how goal alignment can improve profitability and overall return to
 shareholders of the company.(CO 4)

Identification
 of ways that one can use a budget to change employee behavior and align goals
 in the organization is mostly unclear, incomplete,
 and incorrect.
 Explanation
 of how goal alignment can improve profitability and overall return to
 shareholders of the company is mostly unclear,
 incomplete, and incorrect.

Identification
 of ways that one can use a budget to change employee behavior and align goals
 in the organization is only somewhat unclear,
 incomplete, and incorrect.
 Explanation
 of how goal alignment can improve profitability and overall return to
 shareholders of the company is only somewhat
 unclear, incomplete, and incorrect.

Identification
 of ways that one can use a budget to change employee behavior and align goals
 in the organization is clear, complete, and correct. 
 
 Explanation
 of how goal alignment can improve profitability and overall return to
 shareholders of the company is clear, complete, and correct.

Identification
 of ways that one can use a budget to change employee behavior and align goals
 in the organization is clear, complete, and correct. 
 
 Explanation
 of how goal alignment can improve profitability and overall return to
 shareholders of the company is clear, complete, and correct. 
 
 In addition, several insightful examples are provided.

/44 pts

Synthesize
 data to explain the concept of ROI, how the use of an activity-based costing
 system can improve the company’s ROI, and the potential impact on free cash
 flow.(CO 3,4,5)

Synthesis
 and explanation of the concept of ROI, how the use of an activity-based
 costing system can improve the company’s ROI, and the potential impact on
 free cash flow is mostly unclear, incomplete, and
 incorrect.

Synthesis
 and explanation of the concept of ROI, how the use of an activity-based
 costing system can improve the company’s ROI, and the potential impact on
 free cash flow is only partially unclear,
 incomplete, and incorrect.

Synthesis
 and explanation of the concept of ROI, how the use of an activity-based
 costing system can improve the company’s ROI, and the potential impact on
 free cash flow is clear, complete, and correct.

Synthesis
 and explanation of the concept of ROI, how the use of an activity-based
 costing system can improve the company’s ROI, and the potential impact on
 free cash flow is clear, complete, and correct.
 
 In addition, several insightful examples are provided.

/50 pts

Write
 in a clear, concise, and organized manner; demonstrate ethical scholarship in
 accurate representation and attribution of sources; and display accurate
 spelling, grammar, and punctuation.

Writing
 is unclear and disorganized and rereading to solidify understanding is
 frequently necessary. Although an attempt at ethical scholarship is
 attempted, it is sloppy or incomplete throughout. Spelling, grammar, or
 punctuation errors severely interfere with readers’ comprehension.

Writing
 is somewhat clear and is somewhat organized, although rereading to solidify
 understanding is occasionally necessary. It demonstrates an attempt at ethical
 scholarship in accurate representation and attribution of sources, but errors
 are occasional or minor. Writing has good spelling, grammar, and punctuation,
 but errors somewhat interfere with readers’ comprehension.

Writing
 is generally clear and in an organized manner. It demonstrates ethical
 scholarship in accurate representation and attribution of sources; and
 generally displays accurate spelling, grammar, punctuation. Errors are few,
 isolated, and do not interfere with reader’s comprehension.

Writing
 is clear, concise, and in an organized manner; demonstrates ethical
 scholarship in accurate representation and attribution of sources; and
 displays accurate spelling, grammar, and punctuation.

/30 pts.

Subtotal

/ 300 pts

Timeliness

Late Work penalty:

Total Score

/300 pts.

Robert · Accepted Answer

Solution 1 
 
Budget is the expression of organisational goals and objectives in terms of quantitative or 
monetary terms or  both where a control system is adopted by establishing the standards 
and  comparison is made between the actual and setup standards to maintain the efficiency 
which is known as budgetary control system. 
              In the above case Mr Ferguson (Jr) has a clear intention of sticking strictly to the 
budget to achieve the desired goals. But, in the meanwhile the approach adopted was quite 
optimistic rather than being rational where importance was not given to individual activities 
and units. 
Company i.e M/S Ferguson & Son was keener in reducing the costs which adversely affected 
the quality of work being performed and decisions were taken without taking into 
considerations its impact on all aspects. Alternative arrangements were not being made to 
continue an activity in case of machine failure or any other technical reasons and there was 
a lack of co-operation and co-ordination between the departments as each department 
were very specific in meeting their established budget unworried of the problems being 
faced by the other departments. Moreover the company failed the categorize the activities 
on the priority basis which is a major thing that is to be taken into consideration while 
preparing a budgetary control system..
 Basic principles of management i.e “ Man are not machines” concept was overlooked by 
the company as the standards to be set should be such which are achievable Men 
management and money management are two important aspects which is to be taken into 
considerations while preparing a budget which was ignored. The approach adopted shall not 
fetch success in the long run to the company and may lead to dissatisfaction among the 
staff. Moreover, the irrational procedures may lead to overlapping of activities and hamper 
the organisation adversely. Therefore, ten reasons were defined why this budgeting has 
caused significant problems and should be replaced: 
1. Being very bureaucratic is expensive resulting in taking up about 20 percent of 
manager’s time. 
2. It hides innovation and initiative, because it supports management of authority. 
3. Unethical behaviour is encouraged and reputational risk is increased, as it presumes 
violent targets and inducements that need to be met at any cost. 
4. People are demotivated, because instead of performance maximization budgeting 
mostly entails going with the flow. And as the consequence of these people do 
minimum work. 
5. It is outdated in very short time periods, because its key notions normally become out-
of-date rather frequently, and additional time is required for their mastering. 
6. It does not deal with plan, because budgeting is originated on departments and 
functions. 
7. It is out-of-killer with the environment so competitive outside, as quick response and 
nonstop innovations are the main concern of today’s managers apart from the actual 
budget management and people. 
8. It protects costs that is not important and will not add value, because they are mostly 
compiled on the basis of outcomes of the previous year. 
9. It prevents quick response which is not considered as the objective of budgeting, but 
for successful work it is necessary. 
10. It strengthens control and command.
Solution 2 
The budgetary control system of the company should take in to considerations of the basic 
principles of management like work study, Fatigue study, Division of Works etc. in order to 
align its activities with the set up standard. Proper coordination must be established among 
the departments in order to accomplish the goals and objectives of the organisation as a 
whole. 
The organisation was lacking in giving importance to individual activities and  units which 
has to be done in order to assign responsibilities to individuals  and identify the more 
successful and less successful activities which may help the organisation in deciding the 
future course of action. 
Moreover, the budget prepared should be flexible and dynamic,

Assignment 2: LASA 2—Manufacturing Budget Analysis Tom Emory and Jim Morris strolled back to their plant from the administrative offices of Ferguson & Son Manufacturing Company. Tom is manager of the...

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Assignment Components	Unsatisfactory (C- to C)	Emerging 78 – 82% (C+ to B-)	Proficient 83 – 89% (B to B+)	Exemplary 90 – 100 % (A- to A)	Score To calculate score: (% / 100) x max pts. e.g. (80% / 100) x 12 = 9.6
Identify the problems that appear to exist in the company’s budgetary control system and explain how the problems are likely to reduce the effectiveness of the system. (CO 3)	Identification of the problems that appear to exist in the company’s budgetary control system is mostly unclear and incorrect. Explanation of how the problems are likely to reduce the effectiveness of the system is mostly unclear and incorrect.	Identification of the problems that appear to exist in the company’s budgetary control system is only partially unclear and incorrect. Explanation of how the problems are likely to reduce the effectiveness of the system is only partially unclear and incorrect.	Identification of the problems that appear to exist in the company’s budgetary control system is clear and correct. Explanation of how the problems are likely to reduce the effectiveness of the system is clear and correct.	Identification of the problems that appear to exist in the company’s budgetary control system is clear and correct. Explanation of how the problems are likely to reduce the effectiveness of the system is clear and correct. In addition, several insightful examples are provided.	/66 pts.
Explain how the company's budgetary control system could be revised to improve its effectiveness. (CO 3)	Explanation of how the company's budgetary control system could be revised to improve its effectiveness is mostly unclear, incomplete, and incorrect.	Explanation of how the company's budgetary control system could be revised to improve its effectiveness is only somewhat unclear, incomplete, and incorrect.	Explanation of how the company's budgetary control system could be revised to improve its effectiveness is clear, complete, and correct.	Explanation of how the company's budgetary control system could be revised to improve its effectiveness is clear, complete, and correct. In addition, several insightful examples are provided.	/66 pts.
Explain how the use of an activity-based costing system could change the results of the budget if utilized. (CO 3,4)	Explanation of how the use of an activity-based costing system could change the results of the budget if utilized is mostly unclear, incomplete, and incorrect.	Explanation of how the use of an activity-based costing system could change the results of the budget if utilized is only somewhat unclear, incomplete, and incorrect.	Explanation of how the use of an activity-based costing system could change the results of the budget if utilized is clear, complete, and correct.	Explanation of how the use of an activity-based costing system could change the results of the budget if utilized is clear, complete, and correct. In addition, several insightful examples are provided.	/44 pts
Identify ways of how one can use a budget to change employee behavior and align goals in the organization. Explain how goal alignment can improve profitability and overall return to shareholders of the company. (CO 4)	Identification of ways that one can use a budget to change employee behavior and align goals in the organization is mostly unclear, incomplete, and incorrect. Explanation of how goal alignment can improve profitability and overall return to shareholders of the company is mostly unclear, incomplete, and incorrect.	Identification of ways that one can use a budget to change employee behavior and align goals in the organization is only somewhat unclear, incomplete, and incorrect. Explanation of how goal alignment can improve profitability and overall return to shareholders of the company is only somewhat unclear, incomplete, and incorrect.	Identification of ways that one can use a budget to change employee behavior and align goals in the organization is clear, complete, and correct. Explanation of how goal alignment can improve profitability and overall return to shareholders of the company is clear, complete, and correct.	Identification of ways that one can use a budget to change employee behavior and align goals in the organization is clear, complete, and correct. Explanation of how goal alignment can improve profitability and overall return to shareholders of the company is clear, complete, and correct. In addition, several insightful examples are provided.	/44 pts
Synthesize data to explain the concept of ROI, how the use of an activity-based costing system can improve the company’s ROI, and the potential impact on free cash flow. (CO 3,4,5)	Synthesis and explanation of the concept of ROI, how the use of an activity-based costing system can improve the company’s ROI, and the potential impact on free cash flow is mostly unclear, incomplete, and incorrect.	Synthesis and explanation of the concept of ROI, how the use of an activity-based costing system can improve the company’s ROI, and the potential impact on free cash flow is only partially unclear, incomplete, and incorrect.	Synthesis and explanation of the concept of ROI, how the use of an activity-based costing system can improve the company’s ROI, and the potential impact on free cash flow is clear, complete, and correct.	Synthesis and explanation of the concept of ROI, how the use of an activity-based costing system can improve the company’s ROI, and the potential impact on free cash flow is clear, complete, and correct. In addition, several insightful examples are provided.	/50 pts
Write in a clear, concise, and organized manner; demonstrate ethical scholarship in accurate representation and attribution of sources; and display accurate spelling, grammar, and punctuation.	Writing is unclear and disorganized and rereading to solidify understanding is frequently necessary. Although an attempt at ethical scholarship is attempted, it is sloppy or incomplete throughout. Spelling, grammar, or punctuation errors severely interfere with readers’ comprehension.	Writing is somewhat clear and is somewhat organized, although rereading to solidify understanding is occasionally necessary. It demonstrates an attempt at ethical scholarship in accurate representation and attribution of sources, but errors are occasional or minor. Writing has good spelling, grammar, and punctuation, but errors somewhat interfere with readers’ comprehension.	Writing is generally clear and in an organized manner. It demonstrates ethical scholarship in accurate representation and attribution of sources; and generally displays accurate spelling, grammar, punctuation. Errors are few, isolated, and do not interfere with reader’s comprehension.	Writing is clear, concise, and in an organized manner; demonstrates ethical scholarship in accurate representation and attribution of sources; and displays accurate spelling, grammar, and punctuation.	/30 pts.

				Subtotal	/ 300 pts
Timeliness					Late Work penalty:
				Total Score	/300 pts.