MASTER BUDGET AND RESPONSIBILITY ACCOUNTING
Importance of budgeting, financial and nonfinancial budgeting, budgets for judging
performance, budgets for motivating managers and employees, coordination and
communication (virtuous loop), time coverage of budgets, rolling budgets,
Costing system at Plastim Corporation.
Plastim corporation manufactures lenses for the rear lamps (tail lights) for automobiles.
Lenses are made by injecting molten plastic into a mould to give the plastic its desired
shape. The mould is cooled to allow the molten plastic to solidify and the lens is
Under its contract with Giovanni Motors, a major automobile manufacturer, Plastim
makes two types of lenses: a complex lens CL5 and a simple lens S3.
The sequence of steps in the whole process is
1. Design products and processes. Each year there is some modification by Giovanni to
the simple and complex lenses.
2. The lenses are molded, finished, cleaned and inspected.
3. Shipping and Distribution. Finished lens are shipped to Giovanni Motors.
Plastim is operating at capacity. Its business environment is very competitive with respect
to simple lenses. A competitor who manufactures only simple lenses was offering
Giovanni S3 lens @ $53 well below plastims rate of $63 per S3 lens. Plastims
management is very concerned .Fortunately the same pressure is not there for the
complex lens which Plastim sells for $163.
Plastim’s management has various options available. Plastim can give up the Giovanni
business in simple lenses if it is unprofitable. Or, plastim can reduce the size