Responsibility Accounting Fortune Company is a tool and die company that manufactures different types of parts for heavy equipment. Each department has a reporting system that is communicated to the department managers. Managers are supposed to use the information to improve their operations. Superiors use the information to evaluate managers’ performance. Jack Smith this the manager of the assembly department He is not happy with the way the reporting system works. He believes that in its current form, the system is disadvantageous to his department. Included among the variance reported and charged to the assembly department is one for rejected units. The inspection occurs at the end of the assembly department. The inspectors attempt to identify the cause of the rejection so that the department where the error occurs can be charged with it. The problem is not all errors can be easily attributed to a specific department. The non identified units are totalled and apportioned to the departments according to the number of identified errors. Thus the variance for rejected units in each department is a combination of the errors caused by the department plus a portion of the unidentified caused of rejects. Question: Is Jack Smiths complaint valid? Explain the reason for your answer. What would you recommend that the company do to solve its problem with Jack and his complaint?
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