Ferguson & Son Manufacturing Company's Budgetary Control System

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Identify the problems that appear to exist in Ferguson & Son Manufacturing Company's budgetary control system and explain how the problems are likely to reduce the effectiveness of the system. One of the problems that Ferguson & Son Manufacturing Company’s budgetary control system is facing is lack of clarity. According to Tom Emory, the machine shop manager, the new budget does not allow his department to maintain quality. From the case study, it is evident that objectives of the budget system for each department are not communicated in a clear manner as both the machine and equipment maintenance department are having trouble meeting the objectives of the new budget system. Lack of clarity makes it difficult for the departments to meet the budget’s objectives. Another problem that is facing the company is gaming whereby some managers focus on activities that appear…show more content…
Various measures could help improve the effectiveness of the Ferguson & Son Manufacturing Company's budgetary control system. These include: • Preparing a flexible budget – From the case study, it is evident that Ferguson & Son are operating a static budget to help ensure that different departments attain efficiency. However, this type of budget is problematic as it is making it difficult for the machine and equipment maintenance to accomplish budget objectives. A flexible budget would help improve the effectiveness of the company’s budgetary control system by helping to manage changes in logistics and materials supply for the various departments. For instance, by having a flexible budget, the equipment maintenance department would not be having trouble making budget and responding to maintenance problems facing the machine department. A flexible budget would also help the manufacturing company by providing guidance on what activities to engage in based on the changing

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