Ican 2024 Performance Management Question 3

Ogbunigwe Nigeria Limited is a big and reputable publishing firm established in the early 1970’s. The company has recently been taken over by Wisdom International Publishing Company (WIPC) – a multinational company operating in several countries of the world. Mr. Pampam who is the Managing Director of WIPC has been sent from the company’s headquarters to review, among other things, the budgeting and reporting system used by Ogbunigwe Nigeria Limited. During his visit to all the departments, he discovered that monthly budgets are prepared for each department in the company. Upon request, the newly acquired company submitted the last budget statement for the note book production which covered Quarter 3 of 2022 as shown below: The budget statement presented was as shown below: Budget statement for Quarter 3 Department: Note Book Production: Particulars Actual results: Units produced 75,000 Labour hours: 212,100 ACTUAL BUDGET VARIANCES N’000 N’000 N’000 Direct materials 1,512 1,440 (72) Direct Labour 738 720 (18) Variable production overhead 474 432 (42) Fixed production overhead 354 336 (18) Variable admin. Overhead 246 240 (6) Fixed admin overhead 300 288 (12) Total costs 3,624 3,456 (168) Sales value of production 4,650 4,464 186 Profit 1,026 1,008 18 The Head of Department of Note book Production department - Mr. Josiah Okoli-in his comment on the state of affairs of the department, revealed that the budget statement presented was based on 72,000 units with a standard labour processing time of 2.85 hours per unit. Mr. Pampam observed that Mr. Josaih Okoli was not in any way enthusiastic about the budget system. He saw it as a pressure system imposed by the company to permit some Departmental Managers in bad light. He pointed out that the system was hurriedly introduced by Dynamic Financial Konsult about twelve months ago. The consultant did not take time to provide explanation that could assist users of the budget to understand the budgeting system. The Head of Department of Note book Production department who was very experienced doubt the competence of the consultant. He was of the opinion that the system introduced in Ogbunigwe Nigeria Limited was either a ready-made one developed for another company and not suitable for the company or that the consultant did not understand the system well enough to give him the needed confidence to educate the users. He concluded by stating that he was sure his department made a loss as against the positive figure recorded in the report and there was the possibility of reporting a loss at another period when profit was actually made. The situation reported above cuts across virtually all the departments and so the need to nip the issue in the bud became very imperative and urgent. The task of making budgeting system more useful and acceptable in a biased environment like this, no doubt, seems difficult but your advice to Mr. Pampam will assist tremendously in getting the company out of the quagmire resulting from various contraception of this budget system.