Reference no: EM132565401

Obaapa Kissi is the manager of the machine shop, and Akyede Osafo is the manager of the equipment maintenance department of G7 Company Ltd. The ladies had just attended the monthly performance evaluation meeting for the plant department heads of the company. They were returning to their plant from the administrative offices of the company. These meetings are often held on the third Monday of each month since Nana Kay, the owner's son, had become plant manager a year earlier. As Obaapa Kissi and Akyede Osafo were walking, Obaapa spoke: 'Wow, I dislike those meetings! I never know whether the accounting reports from my department will indicate good or bad performance. I am starting to anticipate the worst. If the accountants declare that I saved the company a cedi, I am called "Madam", but if I use even a little too much - OMG, then I am in trouble. I don't know if I can persevere this until I retire.' Examiner: Teddy Ossei Kwakye Page 3 of 4 Obaapa had just been given the worst evaluation she had ever received in her long career with G7 Company Ltd. She was the most respected of the experienced machinists in the company and has been with the company for many years. She was promoted to supervisor of the machine shop when the company expanded and moved to its present location. Teddy Cammy, the owner, had often stated that the company's success is due to the high quality of the work of machinists in the company such as Obaapa. As a supervisor, Obaapa stresses the importance of craftsmanship and tells her workers that she does not tolerate sloppy work emanating from her department. When Nana Kay became the plant manager, he directed that monthly performance assessment are made of the actual and budgeted costs for each department. The departmental budgets were envisioned to encourage the supervisors to reduce inefficiencies and to seek cost reduction opportunities. The company controller was instructed to have the staff 'tighten' the budget marginally whenever a department achieved its budget each month. This arrangement was to reinforce the desire of the plant manager to lower costs. The young plant manager often emphasised how important it was to make progress toward achieving the budget continuously. He further disclosed to them that he was keeping a file of all the performance reports so that when he succeeds his father, they will serve as a reference. Obaapa Kissi and Akyede Osafo's conversation continued as follows:

Kissi: I do not understand. We have worked so hard to get up to the budget, and the minute we make it, they tighten the budget on us. We cannot work any faster and still preserve quality. I think my workers are ready to quit trying. Moreover, those reports do not tell the full story. We always appear to be disrupting the big jobs for all those small rush orders. All that set-up and machine adjustment time are killing us. And quite honestly, Akyede, you did not help. Last month, when our hydraulic press broke down, your workers disappeared. We got stuck with all that idle time because we had to take it apart ourselves.

Osafo: I am sorry about that, Obaapa, but you know my department has had trouble meeting the budget, too. At the time of that problem, we were operating well behind. We would never have made it up and if we had devoted a day on that old machine. Instead, because we knew we could carry out the planned inspections of the forklift trucks in less than the budgeted time, we did those.

Kissi: Well, Akyede, at least you have some options. I am locked into what the scheduling department assigns me, and you know sales are pressuring them for those special orders. By the way, why didn't your report show all the supplies you guys wasted last month when you were working in Bill's department?

Osafo: We are still negotiating on that deal. We charged other works the maximum price we could and have not even reported some of it yet.

Kissi: Well, I am glad you have a way of avoiding the pressure. The accountants seem to know everything that happens in my department, at times, even before I get to know. I assumed that all the budgeting and accounting stuff was meant to help, but it just gets me into trouble. It is all a great pain. I am trying to put out quality work; they are trying to save cedis and pesewas.

You are required to:

Question 1: Discuss the challenges that may be present in using budgeting to control the operations in G7 Company Ltd, the likely effect of these setbacks on the effectiveness of the budgetary control system, and how such a system could be modified to enhance its usefulness.