Terry Travers is the manufacturing supervisor of Aurora Manufacturing Company, which produces avariety of plastic products. Some of these products are standard items that are listed in the company’scatalog, while others are made to customer specifications. Each month, Travers receives a performancereport showing the budget for the month, the actual activity, and the variance between budget and actual.Part of Travers’s annual performance evaluation is based on his department’s performance against budget.Aurora’s purchasing manager, Sally Christensen, also receives monthly performance reports and she, too,is evaluated in part on the basis of these reports.The monthly reports for June had just been distributed when Travers met Christensen in the hallwayoutside their offices. Scowling, Travers began the conversation, “I see we have another set of monthlyperformance reports hand-delivered by that not very nice junior employee in the budget office. He seemedpleased to tell me that I’m in trouble with my performance again.”Christensen: I got the same treatment. All I ever hear about are the things I haven’t done right. Now I’ll haveto spend a lot of time reviewing the report and preparing explanations. The worst part is that it’s now the21st of July so the information is almost a month old, and we have to spend all this time on history.Travers: My biggest gripe is that our production activity varies a lot from month to month, but we’regiven an annual budget that’s written in stone. Last month we were shut down for three days whena strike delayed delivery of the basic ingredient used in our plastic formulation, and we had alreadyexhausted our inventory. You know about that problem, though, because we asked you to call all overthe country to find an alternate source of supply. When we got what we needed on a rush basis, wehad to pay more than we normally do.Christensen: I expect problems like that to pop up from time to time—that’s part of my job—but nowwe’ll both have to take a careful look at our reports to see where the charges are reflected for thatrush order. Every month I spend more time making sure I should be charged for each item reportedthan I do making plans for my department’s daily work. It’s really frustrating to see charges forthings I have no control over.Travers: The way we get information doesn’t help, either. I don’t get copies of the reports you get, yet alot of what I do is affected by your department, and by most of the other departments we have. Whydo the budget and accounting people assume that I should be told only about my operations eventhough the president regularly gives us pep talks about how we all need to work together as a team?Christensen: I seem to get more reports than I need, and I am never asked to comment on them untiltop management calls me on the carpet about my department’s shortcomings. Do you ever hearcomments when your department shines?Travers: I guess they don’t have time to review the good news. One of my problems is that all the reportsare in dollars and cents. I work with people, machines, and materials. I need information to help methis month to solve this month’s problems—not another report of the dollars expended last month orthe month before.Required:Your team should discuss and then respond to the following questions. All team members should agreewith and understand the answers and be prepared to report on those answers in class. (Each teammate canassume responsibility for a different part of the presentation.)1. On the basis of the conversation between Terry Travers and Sally Christensen, describe the likelymotivation and behavior of these two employees as a result of the standard cost and variance reportingsystem that is used by Aurora Manufacturing Company.2. List the recommendations that your team would make to Aurora Manufacturing Company to enhanceemployee motivation as it relates to the company’s standard cost and variance reporting system
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Terry Travers is the manufacturing supervisor of Aurora Manufacturing Company, which produces a
variety of plastic products. Some of these products are standard items that are listed in the company’s
catalog, while others are made to customer specifications. Each month, Travers receives a performance
report showing the budget for the month, the actual activity, and the variance between budget and actual.
Part of Travers’s annual performance evaluation is based on his department’s performance against budget.
Aurora’s purchasing manager, Sally Christensen, also receives monthly performance reports and she, too,
is evaluated in part on the basis of these reports.
The monthly reports for June had just been distributed when Travers met Christensen in the hallway
outside their offices. Scowling, Travers began the conversation, “I see we have another set of monthly
performance reports hand-delivered by that not very nice junior employee in the budget office. He seemed
pleased to tell me that I’m in trouble with my performance again.”
Christensen: I got the same treatment. All I ever hear about are the things I haven’t done right. Now I’ll have
to spend a lot of time reviewing the report and preparing explanations. The worst part is that it’s now the
21st of July so the information is almost a month old, and we have to spend all this time on history.
Travers: My biggest gripe is that our production activity varies a lot from month to month, but we’re
given an annual budget that’s written in stone. Last month we were shut down for three days when
a strike delayed delivery of the basic ingredient used in our plastic formulation, and we had already
exhausted our inventory. You know about that problem, though, because we asked you to call all over
the country to find an alternate source of supply. When we got what we needed on a rush basis, we
had to pay more than we normally do.
Christensen: I expect problems like that to pop up from time to time—that’s part of my job—but now
we’ll both have to take a careful look at our reports to see where the charges are reflected for that
rush order. Every month I spend more time making sure I should be charged for each item reported
than I do making plans for my department’s daily work. It’s really frustrating to see charges for
things I have no control over.
Travers: The way we get information doesn’t help, either. I don’t get copies of the reports you get, yet a
lot of what I do is affected by your department, and by most of the other departments we have. Why
do the budget and accounting people assume that I should be told only about my operations even
though the president regularly gives us pep talks about how we all need to work together as a team?
Christensen: I seem to get more reports than I need, and I am never asked to comment on them until
top management calls me on the carpet about my department’s shortcomings. Do you ever hear
comments when your department shines?
Travers: I guess they don’t have time to review the good news. One of my problems is that all the reports
are in dollars and cents. I work with people, machines, and materials. I need information to help me
this month to solve this month’s problems—not another report of the dollars expended last month or
the month before.
Required:
Your team should discuss and then respond to the following questions. All team members should agree
with and understand the answers and be prepared to report on those answers in class. (Each teammate can
assume responsibility for a different part of the presentation.)
1. On the basis of the conversation between Terry Travers and Sally Christensen, describe the likely
motivation and behavior of these two employees as a result of the
system that is used by Aurora Manufacturing Company.
2. List the recommendations that your team would make to Aurora Manufacturing Company to enhance
employee motivation as it relates to the company’s standard cost and variance reporting system
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