Explain how Ferguson & Son Manufacturing Company’s budgetary

Wk5 Michael Smith
 Tom  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.
uote>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.