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Managerial Accounting Chapter 8 Exercise

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MANAGERIAL ACCOUNTING CHAPTER 8 1. Is Granger Stokes using budges as a planning and control tool?
Granger Stokes is behaving like an activist shareholder more concerned with short term gain than a management executive whose primary goal should be positioning the firm for a better competitive outlook over the long term. He is not using the company budgets as a planning and control tool, but is instead using them to boost sales at literally any costs. More specifically, he is impairing the budgetary control effect and essentially unleashing his managers to take aggressive action in pursuit of sales targets.

2. What are the behavioral consequences of the way budgets are being used at PrimeDrive?
The behavioral consequences are that managers will take shortcuts to achieve their short term sales targets. So much so that quality control measures are circumvented, and well established business procedures are ignored. The fact that defective drives are knowingly shipped to new customers is a huge red flag.
The warranty costs alone will hit the firm when it least expects it because it is highly likely that no reserve provisions are being made since this issue is being swept under the rug, so to speak. When it becomes time to file company financial reports for the period, the figures will be inaccurate and misleading because any financial losses related to the defective drives are not being reported properly.

3. What, if anything, do you think Keri Kalani should do?
Keri should raise the issue with her manager again, and if that fails, consider addressing the issue with his manager or alerting the risk management division of the firm. The production manager’s actions are irresponsible and will lead to negative consequences down the line. The bigger issue here is whether the company management team values the short term outlook over the long term horizon. If…...

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