Consider the following situation: The marketing manager of Gramblin, Inc. accepted a rush order for a nonstock item from a valued customer. The manager filed the necessary paperwork with the production department, and a production manager did the same with purchasing for needed raw materials. Unfortunately, a purchasing clerk temporarily lost the paperwork; by the time it was found, it was too late to order from Gramblin's regular supplier. A new supplier was located that quoted a very attractive price.The materials soon arrived and were found to be of poor quality, thus giving rise to a favorable materials price variance, an unfavorable materials quantity variance, and an unfavorable labor efficiency variance. These latter two variances, based on normal practice, appeared on the

Question

production manager's performance report for the period just ended.Required: A. Given that the company uses a responsibility accounting system, should the production manager be penalized for poor performance? Briefly discuss, keeping in mind that a production manager is generally in a very good position to control material usage and labor efficiency.B. Should anything be done to correct the situation? If "yes," briefly explain.

What will be an ideal response?

Answer 1

A. No. Although the variances appear on the production manager's performance report and are often under his or her control, an adjustment is needed in this case. The problem appears to be the fault of the purchasing clerk who misplaced the paperwork. Another explanation may be that the fault lies with the marketing department for accepting a rush order and possibly putting a strain on the entire manufacturing system.
B. Yes. These variances should be discussed to determine who's to blame and then cross-charged against that individual's department.