West Mountain Canning Company
Response to the following problem:
West Mountain Canning Company produces several food items, including certain tomatobased products. For about nine months during the year, the company is able to purchase tomatoes from various parts of the country. The tomatoes are then processed and canned for sale in grocery stores.
The processing department employs three highly skilled workers, who are paid an average of $15 per hour. Between January and March, tomatoes are not available, and the processing and canning departments are shut down. Rather than lay off these three specialists, who have excellent alternative job opportunities, the company transfers them to the shipping department, at the same $15 pay rate. The shipping department manager is not happy, however, because his five regular employees are paid only $9 per hour. His unhappiness has become particularly acute since he was told he was $9,000 over budget for wages during the January-to-March quarter (budget was $36,000; actual was $45,000). Note that the actual amount includes 1,500 hours (3 employees 500 hours) at $15 per hour, and that each employee works 2,000 hours in a year.
The shipping department manager feels that he is being unduly penalized for two reasons: (1) $15 is too much to pay even a good shipping clerk, and (2) the three skilled workers do not work as hard as his regular employees because they know they are needed for tomato processing and will not be fired. Therefore, he has suggested to his boss that the wages in excess of the $9 he normally pays be assigned elsewhere or that he be allowed to hire his own temporary employees (if needed) during this part of the year.
Answer the following questions:
1. Does the shipping department manager have a legitimate complaint? Explain.
2. Explain how management arrived at the budgeted figure of $36,000 for shipping wages.
3. How might the quarterly figures be reported to satisfy the shipping department manager?
4. How would you recommend that the problem be solved?