Consider the Following Situation

question 18

Essay

Consider the following situation:
The marketing manager of Gilroy, Inc. accepted a rush order for a nonstock item from a valued customer. The manager filed the necessary paperwork with the production department, and a production manager did the same with purchasing for needed raw materials. Unfortunately, a purchasing clerk temporarily lost the paperwork; by the time it was found, it was too late to order from Gilroy's regular supplier. A new supplier was located that quoted a very attractive price.
The materials soon arrived and were found to be of poor quality, thus giving rise to a favorable materials price variance, an unfavorable materials quantity variance, and an unfavorable labor efficiency variance. These latter two variances, based on normal practice, appeared on the production manager's performance report for the period just ended.
Required:
A. Given that the company uses a responsibility accounting system, should the production manager be penalized for poor performance? Briefly discuss, keeping in mind that a production manager is generally in a very good position to control material usage and labor efficiency.
B. Should anything be done to correct the situation? If "yes," briefly explain.

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Definitions:

Savings And Loan Association

A financial institution that specializes in accepting savings deposits and making mortgage and other loans.

Auto Retailer

A business that specializes in the sale of new or used automobiles to the public.

Accountancy Firm

A business that provides accounting, tax preparation, auditing, and financial management advisory services to clients.

Truth In Lending Act

A federal law designed to protect consumers in their dealings with lenders and creditors, by requiring clear disclosure of key terms in the lending agreement and all costs.