"Shut that stupid TV off and get out of my hair," Colin yelled, completely losing his temper. "I’m sick and tired of the Bananas show, and I’ve told you a hundred times to keep the sound down. Go to your room......I’ll deal with you later."

Tears filling her eyes, the eight-year-old walked over to the television, clicked it off, turned, and bolted out of the room without saying a word.

"Finally, some peace and quiet." Colin’s voice lowered and he looked over at his wife. "It’s not my fault, you know. I’ve told her to keep the volume down, particularly during that silly "bananas in pajamas" song. I just have to get this report finished by tonight."

"I know, Dear, but you really have been angry with Krissy since that new computer project was started. Late night phone calls, early morning trips into the office, working on Saturdays and Sundays...is everything OK?" His wife looked at him anxiously.

"Everything’s just fine, Betty," Colin replied, but the emphasis on ‘just’ told both of them that he was lying. Tomorrow was the big day when he, as Divisional Controller, was required to present the previous quarter results to Corporate staff. The Corporate Controller was coming, along with the Senior Vice-President, Automotive Group. This could make or break his career, he thought.

"Well, everything would have been fine, except for that silly manufacturing cell that we put in two quarters ago. You remember the one, Jeff Culver was responsible, and it’s just not working out." Colin’s voice was tinged with bitterness.

"But you were so excited about that one, weren’t you? Isn’t that the one that you thought would get you noticed by Corporate? What went wrong?"

"Well, Jeff and the boys in engineering decided that to maximize our flexibility, they would need to have a new ABB manufacturing cell. The word was out that we had to cut our staff by 20% to meet staffing constraints, and we really wanted to get the new contract that Chrysler was offering. We knew that we could meet the quality and delivery requirements, and we would scoop the other divisions. It would be our division maxing our ROI this time, not Springs, and we’d all be in a position for hefty raises. We had to have the flexible cell to be able to do it."

"Well, that’s great, but if it didn’t work out, doesn’t Jeff take the fall?" Betty recalled meeting Jeff at the Christmas party. He was young, aggressive, and was rumored to be a fast tracker to the divisional manager’s position. She really didn’t like him.

"Yup, there’s no question that he’s a goner," Colin said glumly, "but I could go with him."

"Why would they pick on you?" Betty asked. "You simply report the facts...Jeff made the decision to purchase the machine."

"Well, it’s not quite that simple," Colin responded. "They’ve got me too. See, back about a year ago, Jeff brought the proposal to me. They had found a machine cell that Magna had ordered and then declined to accept delivery. ABB was anxious to sell the machine as long as we could come up with the money quickly. The cell would normally have cost about $450,000 and they were prepared to let us have it for $250,000, without technical support. We had to make a deal quickly, so Jeff discussed it with me. If we followed normal capital budgeting channels, it would have taken at least 9 months to get the machine approved and we would have to pay the full price. So Jeff proposed that we do it out of our maintenance and supplies budget, instead of the capital budget. ABB was willing to take 5 installments of $50,000 each, so it was pretty easy to hide it in on-going operations as repairs, maintenance, and upgrades to our existing equipment."

"Why do all that?" Betty looked bewildered.

"Our normal capital budgeting process requires us to get projects greater than $50,000 approved at Corporate. They also would have required us to get the technical support that would have pushed the price tag up to at least $400,000. We could never have snuck that one through!"

"What did Ross Johnson think?" Betty asked, "He’s always been good with advice. I think he wants you to take his job when he leaves."

"Betty, you don’t go to the corporate controller with something like this, for Pete’s sake. I think he would have understood why I was doing it, but he couldn’t tell me to violate a policy that he helped put in place."

"You were just audited last month. Didn’t they ask any questions?"

That question brought a wry smile to Colin’s face. "No, they were easy to con. We were most anxious about the internal audit, but they rarely walk the shop floor. They’re much more interested in our expense accounts. I don’t think that they could have comprehended the size of our ‘project’.

"So what went wrong? What’s the problem?"

"It turns out that Jeff didn’t understand how difficult the installation of this cell would be without technical support. He can’t call Corporate, because they don’t know about it. The cell is still sitting idle and we’ve been hiring consultants to get this white elephant underway. I’ve been hiding the costs, charging them to our other production lines. As a result, we’ve run up big negative variances. I’m on the hook for that.....and that jerk Jeff wants to replace the whole software interface with our other lines. He says that will finally take care of the problem, but I’m not sure I trust him."

Betty hesitated and then spoke slowly. "How about discussing it with Ross and coming clean on the problem? He’ll give you good advice."

"Are you kidding? He’s likely to sack me on the spot. He was constantly warning me to stay aloof from the division management but, since they determine my bonus based upon their performance, I wanted to help in any way I could. Jeff keeps telling me that the former divisional controller walked close to the edge and managed to get that plum job down in North Carolina. I guess that I just wanted the best for you and Krissy."

"Well, Colin, what are you going to do?"

"I don’t know. If I tell Ross, he’ll probably fire me. On the other hand, it seems that we’re going further and further into the deep stuff. I don’t know how long I can keep this hidden."

"Well, I’m not sure that Krissy and I can handle it either, Colin. How about going up and tucking her in, and telling her you’re sorry."

Required

If you were Colin, what would you do?

Answer rating: 100% (QA)

When costs exceed the allocated budget this is referred to as an unfavorable variance The e... View the full answer