Management Decision Case

  Case Study Questions Most accountants believe that a flexible budget can be a good choice for calculating variances on variable costs (such as gas and oil). In 70 words or less, using the knowledge about accounting you have gained in this course and the facts presented in the case narrative, identify and describe the single most likely cause of the unfavorable variance on gas and oil expense and explain the basis for your belief. Note: The company recorded the cost of installing the underground tanks as a central corporate asset, so no depreciation or other expense (such as maintenance) related to those tanks appears on this flexible budget (therefore, nothing about the tanks will be a part of your answer here). Oakwood currently measures Mac's performance using the cart rental operation's profit each month. Assume it decides to start measuring Mac’s performance using the flexible budget (experienced businesspersons with MBAs would likely call that “flexing out the volume effect”). In 100 words or less, describe the most likely future effects (intended and unintended) of this change (using a flexible budget to measure Mac's performance) on (1) the quality of the cart rental fleet and (2) the profitability of the cart rental operation. In your answer, describe any assumptions you make and be sure to state clear, logical arguments that lead to your conclusions. Note: This requirement does not ask you to discuss flexible budgeting or how nice it will or won’t be for Mac to be evaluated this way. Please do not address any issues other than the most likely effects (intended and unintended) of this one, specific change (using a flexible budget measure Mac's performance) on the future quality of the cart rental fleet and the future profitability of the cart rental operation. A conflict between the interests of Mac and Sandy exists in this situation. One might argue that having each of these managers achieve their goals separately might not lead to the best results for Oakwood as a whole. In 100 words or less, describe the conflict that exists here and offer a detailed solution that would better align the goals of these managers with the overall goals of Oakwood. Remember: Sandy and Mac communicate regularly and work out most issues in a friendly way, (other than the issue of closing courses to carts because of weather-related conditions) so suggesting they communicate better is not going to be a solution here. Also, remember that Oakwood has a strong policy of decentralization and that Mac and Sandy each have valuable knowledge about their specific operations that Oakwood wants to make sure they use effectively in managing their respective operations.