Richie McCaw and Tana Umaga walked back to their plant from the administrative offices of Super Rugby Sport Manufacturing Co. Richie is the manager of the machine shop in the company’s factory; Tana is the manager of the equipment maintenance department. They 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 Graham Henry III, the president’s grandson, had become plant manager a year earlier. As they were strolling, Richie said: “I am not looking forward to the meetings aye! I never know whether my department’s accounting reports is good or not. I am having a bad feeling about it. If the accountants say I saved the company a dollar, I’m called ‘a legend’ but if I spend even a little too much—I am a bad fella. I don’t know if I will still be here before I retire.” Richie had just been given the worst evaluation he had ever received in his long career with the company. He had been with Super Rugby Sport for many years and was promoted to supervisor of the machine shop when the company expanded and moved to its present location. The old president (Graham Henry I) had often stated that the company’s success was due to the high-quality machinists like Richie. As supervisor, Richie stressed the importance of craftsmanship and told his workers that he wanted no sloppy work coming from his department. When Graham Henry III became the plant manager, he directed that monthly performance comparisons be made between actual and budgeted costs for each department. The departmental budgets were purposely made to encourage the supervisors to reduce inefficiencies and to seek cost reduction opportunities. The middle management was instructed to have staffs cut the budget slightly whenever a department attained its budget in a given month. This was done with the aim of reinforcing 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 becomes the president. Richie’s conversation with Tana continued as follows: Richie: I just don’t get it. We work and work and work to meet the budget, and the minute we do so they bloody tighten the budget. We can’t have both speed and high quality. I think my men are ready to give up. Besides, those reports cannot show the whole picture. We constantly being interrupt on the big jobs for all those small rush orders. All that setup and machine adjustment time is bloody killing us. Oh, and by the way, Tana, you were no help. When our moulding machine 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. Tana:I know I know, but you know my department is trying to make the budget too. We were running well behind, and if we had spent a day on that old machine, we would never have met the budget. Instead we made the scheduled inspections of the pickup trucks because we could do those in less than the budgeted time. Richie: Well, at least you have options. I’m stuck with what the scheduling department assigns to me and they’re being harassed by sales for those special orders as well. By the way, I have noticed that you did not include the supplies you guys wasted last month when you were working in Bill’s department in your report, why? Tana:Well, that deal is not done yet. We charged the maximum we could to other work and haven’t even reported some of it yet. Richie: Not an ideal way but at least you have options in getting out of the pressure. The accountants seem to know everything in my department, sometimes even before I do. I thought all that budget and accounting things was supposed to help, but it just constantly gets me into trouble. It’s a bloody pain in the… you know what I mean. I am trying my best to increase the quality of the work; they are trying to save money, small money even. Required: 1.Identify the problems that appear to exist in Super Rugby Sport Manufacturing Co’s budgetary control system and explain how the problems are likely to reduce the effectiveness of the system. 2.Explain how Super Rugby Sport Manufacturing Co’s budgetary control system could be revised to improve its effectiveness.