Budgeting and ethics. Delma Company manufactures a variety of products in a variety of departments, and evaluates departments and departmental managers by comparing actual cost and output relative to the budget. Departmental managers help create the budgets, and usually provide information about input quantities for materials, labor and overhead costs. Wert Mimble is the manager of the department that produces Product Z. Wert has estimated these puts for Product Z:
The department produces about 100 units of Product Z each day. Wert’s department always gets excellent evaluations, sometimes exceeding budgeted production quantities. Each 100 units of product Z uses, on a. average, about 32 hours of direct manufacturing labor (four people working eight hours each,) 295 pounds of material, and 16.5 machine hours. Top management of Delma Company has decided to implement budget standards that will challenge the workers in each department, and it has asked Wert to design more challenging input standards for product Z. Wert provides top management with the following input quantities:
Discuss the following:
1. Are these standards, challenging standards for Department Z?
2. Why do you suppose Wert picked these particular standards?
3. What steps can Delma Company top management take to make sure Wert’s standards really meet the goals of the firm?