(2) distort the system, (3) distort the figures.2 While the
use of accounting information for scorekeeping,
resource allocation, and decision analysis can provide
vital, necessary information to management, its use for
controlling people and processes often results in a failure
to understand the capability of a process and,
worse, actual distortion of the process itself. The example
that we discuss illustrates how a reliance on
accounting numbers to control people and processes
and to represent the voice of a process led to manipulation
of the system and to the company erroneously paying
bonuses to those responsible for the process.
The actual case that is the basis of our fictitious
example was presented to a graduate managerial
accounting class by a student. The student asked to
remain anonymous, and we have altered the situation
so that the company cannot be identified. The real
company did add raw material to another product, and
there was unacceptable waste of the raw material. The
employees were given an arbitrary accounting goal with
a bonus as a reward for reducing the waste. The
employees did manipulate the system as presented.
The company is now using statistical process control
(SPC).
CORRECTING A PROBLEM IN THE
WRONG WAY
A breakfast cereal producer that included fruit in one
of its products became concerned because of the apparent
waste of fruit. The cereal boxes were to contain 10
ounces of cereal and two ounces of raisins. Management
recognized that some waste would occur in the
process and allowed a 5% shrinkage—.1 ounces of fruit.
Consequently, an average consumption of 2.1 ounces of
fruit per box was acceptable. During the previous
month, however, the production processes had been
using an average of 2.5 ounces of raisins per box. The
accounting department discovered the problem in its
weekly accounting report, which computed the actual
cost and quantity of raisins consumed by taking a physical
inventory and comparing the amount of inventory
reduction with the standard allowed per box. During
the past week 43,200 boxes of cereal had been
processed with the consumption of 108,000 ounces of
raisins, equaling an average of 2.5 ounces of raisins per
box. In an attempt to correct the problem, management
offered a bonus to employees if they could
reduce the total fruit consumed to an average of 2.1
ounces—a 5% shrinkage. Within a month the problem
appeared to have been corrected, and bonuses were
distributed. (See figure on the facing page.)