Posted: July 19th, 2016

What department should bear the penalty?

Chicken dinners at $19 1425 1767 342U
Beverages, $6 per person 450 466 16U
Club rental, $75 plus 8% tax 81 81 0
Music, 3 hours at $250 per hour 750 875 125U
Profit (81) 66 $147F
1. Subdivide each variance into a sales-activity variance portion and a flexible budget variance portion.
2. Provide possible explanations for the variances.

9-A1 Responsibility of Purchasing Agent
Excel Electronics Company, a privately held enterprise, has a subcontract from a large aerospace company in Chicago. Although Excel was a low bidder, the aerospace company was reluctant to award the business to the company because it was a newcomer to this kind of activity. Consequently, Excel assured the aerospace company of its financial strength by submitting its audited financial statements. Moreover, Excel agreed to pay a penalty of $5,000 per day for each day of late delivery for whatever cause.

Margie McMahon, the Excel purchasing agent, is responsible for acquiring materials and parts in time to meet production schedules. She placed an order with an Excel supplier for a critical manufactured component. The supplier, who had a reliable record for meeting schedules, gave McMahon an acceptable delivery date. McMahon checked up several times and was assured that the component would arrive at Excel on schedule.

On the date specified by the supplier for shipment to Excel, McMahon was informed that the component had been damaged during final inspection. It was delivered ten days late. McMahon had allowed four extra days for possible delays, but Excel was six days late in delivering to the aerospace company and so had to pay a penalty of $30,000.

What department should bear the penalty? Why?