Reference no: EM132956619

The marketing manager of Gilroy Incorporated accepted a rush order for a non-stock item from a valued customer. The manager filed the necessary paperwork with the production department, and a production manager did the same with purchasing for needed raw materials. Unfortunately, a purchasing clerk temporarily lost the paperwork; by the time it was found, it was too late to order from Gilroy's regular supplier. A new supplier was located that quoted a very attractive price.

The materials soon arrived and were found to be of poor quality, thus giving rise to a favourable materials price variance, an unfavourable materials quantity variance, and an unfavourable labor efficiency variance. These latter two variances, based on normal practice, appeared on the production manager's performance report for the period just ended.

REQUIRED:

Problem 1. Given that the company uses a responsibility accounting system, should the production manager be penalized for poor performance? Briefly discuss, keeping in mind that a production manager is generally in a very good position to control material usage and labor efficiency.

Problem 2. Should anything be done to correct the situation? If "yes," briefly explain.