Reference no: EM132616668

Problem

Joe Smith is the stores and purchasing manager for the Pristine Waters hotel and gol?ng complex located on one of Australia's Whitsunday Islands. Joe receives purchase requisitions from other department heads in the organisation. When he took the job, Joe was informed that he had responsibility for servicing the purchasing needs of other department heads. In the case of rarely purchased items, it is customary for Joe to be provided with speci?cations from the department initiating the request. In June last year, the hotel secured the contract for a large conference to take place in February this year. As a result of September and October meetings with the conference organisers, it was decided that the conference would include a high-tech "real time" link-up to a similar conference being held at the same time in the USA. This live link-up was given signi?cant prominence in the conference's promotional material. To facilitate the link-up, the hotel needed to buy a particular computer accessory. Maxine Bromwich, the head of the hotel's banquet and conference department, informed Joe of the need to purchase this computer accessory in late November last year. At that time she also informed him that it would be needed for the February convention.

Following initial inquiries, Joe discovered that his regular supplier of computer equipment did not stock the part. He called many other potential suppliers and ?nally found a computer specialist located in Perth that agreed to supply the required accessory. Joe mailed the purchase order to the chosen supplier in mid-December. In mid-January, following his annual three-week holiday, Joe telephoned the supplier to ensure that all was well with the shipment. At that time the supplier informed him that the computer part was on its way. A week before the conference, the part had not arrived so Joe called again, and again he was told not to worry and that the part had left on time. Two days before the conference start date the part had still not arrived. Joe called again and it was discovered that the part had been mailed to the wrong address. At the commencement of the conference, Maxine Bromwich informed delegates that due to a technical hitch, the forum that was to involve the link-up to the US conference had been cancelled. This caused considerable disappointment amongst delegates and as part of a damage limitation exercise, they were reimbursed with $145. This represents the price charged to delegates for one night's accommodation at the hotel. This damage control exercise signi?ed a loss of $60,900 ($145 × 420 delegates) for the hotel.

Question

Explain how this $60,900 loss should be accounted for. Your answer should include an appropriately reasoned justi?cation for the answer you provide. Should it be charged to Joe Smith's purchasing department, or should it be charged to Maxine Bromwich's banquet and conference department? Maxine Bromwich has complained that if it is to be charged to her department, she will be unable to meet her department's budgeted pro?t for the year.