Chapter 6, Problem 6.41P

Budgeting and ethics. Jayzee 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.

Kurt Jackson is the manager of the department that produces product Z. Kurt has estimated these inputs for product Z:

Input	Budget Quantity per Unit of Output
Direct material	8 pounds
Direct manufacturing labor	30 minutes
Machine time	24 minutes

The department produces about 100 units of product Z each day. Kurt’s department always gets excellent evaluations, sometimes exceeding budgeted production quantities. For each 100 units of product Z produced, the company uses, on average, about 48 hours of direct manufacturing labor (eight people working 6 hours each), 790 pounds of material, and 39.5 machine-hours.

Top management of Jayzee Company has decided to implement budget standards that will challenge the workers in each department, and it has asked Kurt to design more challenging input standards for product Z. Kurt provides top management with the following input quantities:

Input	Budget Quantity per Unit of Output
Direct material	7.9 pounds
Direct manufacturing labor	29 minutes
Machine time	23.6 minutes

Discuss the following:

1. 1. Are these budget standards challenging for the department that produces product Z?
2. 2. Why do you suppose Kurt picked these particular standards?
3. 3. What steps can Jayzee Company’s top management take to make sure Kurt’s standards really meet the goals of the firm?