Controllability, responsibility, and balanced scorecard

Gerald Neumeier, president of Friedman Corporation, evaluated the performance report of the company’s production department. Mr. Neumeier was confused by some arguments presented by Elaine Grayson, the production manager. Some relevant data follow.

Variances	Amount
Materials usage variance	$400,000 U
Materials price variance	240,000 F
Labor price variance	76,000 F
Labor usage variance	276,000 U
Volume variance	600,000 U

Ms. Grayson argues that she had done a great job, noting the favorable materials price variance and labor price variance. She argued that she had had no control over factors causing the unfavorable variances. For example, she argued that the unfavorable materials usage variance was caused by the purchasing department’s decision to buy substandard materials that resulted in a substantial amount of spoilage. Moreover, she argued that the unfavorable labor usage variance resulted from the substantial materials spoilage which in turn wasted many labor hours, as did the hiring of under qualified workers by the manager of the personnel department. Finally, she said that the sales department’s failure to obtain a sufficient number of customer orders really caused the unfavorable volume variance.

Required

a. What would you do first if you were Gerald Neumeier?

b. Did Ms. Grayson deserve the credit she claimed for the favorable variances? Explain.

c. Was Ms. Grayson responsible for the unfavorable variances? Explain.

d. Explain how a balanced scorecard can be used to improve performance evaluation.