At Lakeside Manufacturing, budgets are the responsibility of everyone. Each depa

Question

At Lakeside Manufacturing, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Al Talbott, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process. As the accounting manager, write a memo to Mr. Talbott, explaining why the ending inventory figure should be extremely accurate, with as little slack as possible.

Explanation / Answer

I know you believe in putting plenty of slack into all your budgets, including your ending inventory estimates. However, while this helps you survive budget reductions, this practice can cause a great deal of damage. I am asking you to reconsider adding slack to the ending inventory estimates. The estimates that you provide are used to calculate budgets in all other departments. Thus, if you create an inaccurate budget, the budgets of the other departments will be inaccurate as well. Higher inventory estimates will lead to stockouts in other departments. They will count on your having a certain amount of inventory, even though you will be unable to produce this amount. Low inventory estimates, on the other hand, will lead to elevated storage costs. Money will be spent to produce more goods than can be used, and spoilage will result. As you can see, an inaccurate budget will create a windfall of problems throughout departments. For this reason, please ensure your numbers are as precise as possible. Thank you for your time.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.