Ferguson & Son Manufacturing Essay Example for Free

Ferguson parole Manufacturing EssayFerguson Son Manufacturing company is attempting to increase power and reduce approach by introducing monthly achievement reports for apiece department. Robert Ferguson Jr is trying to introduce this new type of accounting body and when you try something like this you give always run into some problems, but Robert is creating a culture of resentment. Robert Ferguson is using a static supplying reckon to analyze the performance of all(prenominal) department.Garrison, Noreen Brewer (2012) define a planning budget as a budget prep bed before the period get downs and is valid for only the planned aim of bodily function (p. 385) Robert is using a budgeted level of action at law and analyze it to the actual level of bodily function as the prat for the evaluations. The information that is received from an evaluation done in this manner is going to be misleading. The budgeted level of performance is not always going to be the same a s the actual level of employment, so a true comparison is impossible.For example my company manufactures safety belts for motor vehicles and the budget is based on an activity level of 5000 units for the period. The actual level of activity for the period is 4000 units and in result be and revenue argon lower than the budget amount. If our company compargond the appeals are going to be different simply beca utilization the activity level is different then the unchanged planned amount and the results pass on not furnish decisive data for performance and efficiency because there is no true visualiseled factor.Garrison, Noreen Brewer describe this as comparing apples to oranges. This type of g everyplacenance is going to provide incorrect data for performance, in result the company give not be able to visualize their be and true revenue potential. The planning budget government is going clear discrepancies in the spending variance. According to Garrison, Noreen Brewer (2 012) the spending variance is the difference surrounded by how much a cost should fix been, given the actual level of activity, and the actual amount of the cost (p. 91)The spending variance throw out be evaluated as favorable or unfavorable, and this could effect how the product is priced or even purchasing new high tech equipment. You dissolve not efficaciously utilize a spending variance in a planned budget system because you do not use the same activity level to compare cost. These are declamatory decisions that can contact a big impact on a companies revenue and if the system is not using the actual activity level and costs and comparing to the actual levels, the spending variance forget be evaluated incorrectly.The planning budget system is going to effect the morale of the supervisors and employees dramatically. Robert Ferguson Jr is evaluating the performance of the supervisors and departments monthly based on amounts and activities that they have budgeted. This budg et could be completely unrealistic and this allow for cause the entire staff to intent hopeless and bitter. Once throng begin to feel hopeless, their hunt down performance give fall, production and efficiency ordain naturally follow. Their consummation performance will construct into retainer the quantity of their work, but more importantly the quality of their work.If your employees feel they have to cut corners to meet budget to keep their jobs, they will do so and the company could begin to alienate their customers. To continue the seat belt example, if my company had to produce 5000 units and this was impossible unless the workers cut a a few(prenominal) corners now the company has faulty seat belts going to car companies. This could cause a large reject on the cars that our clients produce and those clients are going to find a new company to work with for these products.In this example, my company just lost a tremendous amount of money due to an accounting system that demands so much of their workers that the quality of their work has to be sacrificed. This is all due to notion of increasing efficiency without comparing the activity levels and costs in the same manner. Ferguson Son Manufacturing should adapt a flexible budget system to improve efficiency.Garrison, Noreen Brewer (2012) define a flexible budget as an estimate of what revenues and costs should have been, given the actual level of activity for the period(p. 385). Garrison, Noreen Brewer (2012) go on to say that when a flexible budget is used in performance evaluation, actual costs are compared to what the costs should have been for the actual level of activity during the period rather than to the static planning budget (p. 385). The activity level will change each period, through out the period as the business activity increases and decreases. Emory says, those reports dont reassure the whole story. We always seem to be interrupting the big jobs for all those small rush orders. All that placed up and machine adjustment measure is killing us. This is an example of the type of activity that is going to put across and needs to be taken into consideration when one is evaluating efficiency. The flexible budget will take into consideration this activity and compare the costs to the same level of activity. The current planned budget does not take this into consideration and these are issues that the supervisor has no power over. With the knowledge from the flexible budget, Robert Ferguson Jr may decide that if they procure a new machine they could complete these rush orders, not have any idle time and in result increase efficiency.In the flexible budget system, Robert will be able to in effect evaluate the spending variance and assess the performance of his workers. The flexible budget is going to make the supervisors and separate workers feel they are being measured fairly and can have a positive reek of accountability. During each accounting meeting super visors like Tom and Jim will be able to walk in confidently, look at the activity of their departments, what their costs should have been based on the activity, what it was actually and see where they can improve.Tom and Jim have been working(a) at Ferguson Son for a very long time and understand what they and their teams can accomplish. They have been praised for the quality of their work by Robert Ferguson Sr and their expertise can be the well-nigh efficient tool Robert Ferguson Jr has in the factory. Flexible budget system will create realistic goals for the workers and in turn relieve the negative stress being placed on them. The quality of work will not be sacrificed to cut costs, Tom and Jim will incorporate new work practices to increase efficiency. Activity-based be could be a great tool for Ferguson Son Manufacturing f used properly.Activity-based costing is defined by Garrison, Noreen Brewer (2012) as a costing method that is designed to provide managers with cost i nformation for strategical and other decisions that potentially affect capacity and therefore fixed as well as inconstant costs. Activity-based costing is ordinarily used as a supplement to, rather than as a surrogate for, a companys usual costing system (p. 273). Activity-based costing takes into consideration all different types of costs as they relate to the activities, so managers can make more effective decisions.Garrison, Noreen Brewer (2012) state the utensilation fulfill for activity-based costing breaks down into five steps and these steps are define activities, activity cost pools, and activity measures assign overhead costs to activity cost pools calculate activity rates assign overhead costs to cost objects using the activity rates and activity measures, and finally prepare management reports. The startle step is going to require the company to interview supervisors of each department to understand the activities, activity cost pools and activity measures.This w ill involve the supervisors and give the company a better grasp of the activity, but make the supervisors feel they are a part of the process and team. This will in turn improve their bureau and overall morale. Once they have interviewed the supervisors and understand the activities, they will be able to assign overhead costs to activity pools such as the rent for the factory to production or the salaries of the marketing managers to the marketing department. The coterminous steps will have them assign rates and costs to certain objects.Activity-based costing will pull up stakes Ferguson Son Manufacturing to become more efficient by giving them the ability to see what areas need the approximately improvement. Activity-based costing breaks down the costs for each department and activity in a way that Robert Ferguson Jr can assess the report and use the theory of constraint to locate the department that needs to improve and efficaciously take the steps to improve that department . As the system is continued to be used the company will see their efficiency rise and in results so will the company profits.Individuals are always working towards a purpose or some type of goal and that is what a budget can provide. I would utilize a budget to create a sense of urgency, competition and direction in the work place. I would utilize a responsibility accounting system. Garrison, Noreen Brewer (2012) define responsibility accounting as a system of accountability in which managers are held responsible for those items of revenue and costand only those itemsover which they can exert significant control.The managers are held responsible for differences between budgeted and actual results (p. 337). This type system will allow the managers to be held responsible for the items they can directly control, by involving them in the process and not mechanically penalizing them for not meeting their goals immediately. Everyone wants to feel there are part of a team and involved i n the process of creating their own goals. I would implement a self-imposed budget system to help create a sense of control for all workers and managers of the formation.Garrison, Noreen Brewer (2012) define a self-imposed budget as a method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement (p. 338). I would create a budget committee that includes the managers to provide everyone in the institution this sense of unity. Once a budget is created and the workers have a sense of control and unity I would create an incentive program to encourage workers to accomplish and exceed their goals.I would implement a bonus incentive plan for my workers. This system would utilize the budget created by the organization and come along inspire the workers to excel. People are motivated by many different things and most of them involve factors that are not directly related to the work place. People work to provide financial security for their family, prestigiousness outside of work and pride for the work they do. A bonus program will give each individual the opportunity to accomplish any or all of these personal goals and contribute to the mastery of the organization.If each person in the organization is striving to surpass their goals, the organization will do the same and the results will be evident to the shareholders. Garrison, Noreen Brewer (2012) define counterpunch on investment as the net direct income divided by average operating assets. It also equals margin multiplied by turnover (p. 475). The return on investment is the profit of the organization. Activity-based costing allows larger companies to understand what their costs are, where they are coming from and how to effectively reduce them to create the largest return possible.Activity-based costing systems do have start up costs associated with them. The organization must train persona l to understand the process and systems in order to properly accomplish these activities. The organization must interview staff to research their departments properly to get the accurate information vital to the success of activity-based costing. These costs are the reason many smaller organizations can not apply this system.Activity-based costing provides the organization with the ability to dissect their departments activities and costs. This will allow the organization to see what areas need improvement, what costs can be avoided, in result increase profits and free cash flow for possible expansion or upgrades. If Robert Ferguson Jr can see what departments are costing the company excessive amounts of money, he can lower or eliminate those costs. Once Robert reduces the cost of production, the revenue will rise and the return on investment will grow.