Question 1: FT Electronics
The re-assignment of the skilled labour to the service department represents a way of the company to reduce attrition and at the same time ensure that the workforce is equipped with adequate workloads. Due to this re-assignment, the costs for the skilled labour will now be shown under the service department. This escalates the costs associated with the service department and overshoots the budgeted targets for the year. The supervisor is correct in approaching the controller with the issue of overshooting the budget. The management should have handled the situation in a different manner. In this case, the re- allocation of the skilled labour to service department is strategically correct and the logic behind it is also sound. But, with respect to accounting, certain changes should have been made. The actual budgeted cost associated with the production department is not going to be reached as the unskilled labour has been rolled off and the skilled labour is part of another department. In such a situation, along with the re-allocation, the budget for the cost associated with the production department should have been revisited and reduced.The same should have been moved to the service department. This would ensure that the budgeted cost does not go waste in the production department while at the same time the budget for the service department is not exceeded (Shah 2007). This would lead to reduction in the variance that the supervisor is reporting to the controller. This decision and the budget changes should have been taken care of by the management accounting team and the controller.