6-32 (15 min.) Responsibility of purchasing agent.
The time lost in the plant should be charged to the purchasing department. The plant manager probably should not be asked to underwrite a loss due to failure of delivery over which he had no supervision. Although the purchasing agent may feel that he has done everything he possibly could, he must realize that, in the whole organization, he is theone who is in the best position to evaluate the situation. He receives an assignment. He may accept it or reject it. But if he accepts, he must perform. If he fails, the damage is evaluated. Everybody makes mistakes. The important point is to avoid making too many mistakes and also to understand fully that the extensive control reflected in responsibility accounting is the necessary balance to the great freedom of action that individual executives are given. Discussions of this problem have again and again revealed a tendency among students (and among accountants and managers) to “fix the blame”––as if the variances arising from a responsibility accounting system should pinpoint misbehavior and provide answers. The point is that no accounting system or variances can provide answers. However, variances can lead to questions. In this case, in deciding where the penalty should be assigned, the student might inquire who should be asked––not who should be blamed. Classroom discussions have also raised the following diverse points: (a) Is the railroad company liable? (b) Costs of idle time are usually routinely charged to the production department. Should the information system be fine-tuned to reallocate such costs to the purchasing department? (c) How will the purchasing managers behave in the future regarding willingness to take risks? The text emphasizes the following: Beware of overemphasis on controllability. For example, a time-honored theme of management is that responsibility should not be given without accompanying authority. Such a guide is a useful first step, but responsibility accounting is more far-reaching. The basic focus should be on information or knowledge, not on control. The key
Statement of Budgeted Cash Receipts and Disbursements For the Months of December 2009 and January 2010
December 2009 January 2010
Cash balance, beginning $ 10,000 $ 2,025 Add receipts: Collections of receivables (Schedule 1) 235,900 285,800 (a) Total cash available for needs 245,900 287,825 Deduct disbursements: For merchandise purchases (Schedule 2) $183,875 $141,750 For variable costs (Schedule 3) 50,000 25,000 For fixed costs (Schedule 3) 10,000 10,000 (b) Total disbursements 243,875 176,750 Cash balance, end of month (a – b) $ 2,025 $111,075
Enough cash should be available for repayment of the note on January 31, 2010.
Schedule1: CollectionsofReceivables
Collections in October November December Total
December $14,400a $50,000b } 171,500c $235,900 January 20,000d $ 60,000 e } 205,800f $285,800 a 0.08 × $180,000 b0.20 × $250,000 c0.70 × $250,000 × .98 d 0.08 × $250,000 e0.20 × $300,000 f0.70 × $300,000 × .98
6-2 Schedule2: PaymentsforMerchandise December January Target ending inventory (in units) 875a 800c Add units sold (sales ÷ $100) 3,000 1,500 Total requirements 3,875 2,300 Deduct beginning inventory (in units) 1,250b 875 Purchases (in units) 2,625 1,425 Purchases in dollars (units × $70) $183,750 $99,750
December January Cash disbursements: For December, accounts payable; For January, December’s purchases at 50% $ 92,000 $ 91,875 For current month’s purchases at 50% 91,875 49,875 $183,875 $141,750 a 500 units + 0.25 ($150,000 ÷ $100) b $87,500 ÷ $70 c 500 units + 0.25($120,000 ÷ $100)
3. Production Budget (in Units) For the Year Ending December 31, 2009 Product Chairs Tables Budgeted unit sales 172,000 45,000 Add target ending finished goods inventory 8,500 2,250 Total required units 180,500 47,250 Deduct beginning finished goods inventory 8,000 2,100 Units of finished goods to be produced 172,500 45,150
