The director of marketing for Starr Computer Co., Megan had the following discus
ID: 2773898 • Letter: T
Question
The director of marketing for Starr Computer Co., Megan had the following discussion with the company controller, Cammy on July 26th of the current year:
Megan: It looks like I'm going to spend much less than indicated on my July budget.
Cammy: I'm glad to hear it.
Megan: Well, I'm not sure it's good news. I'm concerned that the president will see that I'm under budget and reduce my budget in the future. The only reason that I look good is that we've delayed an advertising campaign. Once the campaign hits in September, I'm sure my actual expenditures will go up. You see, we are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill by September numbers.
Cammy: I don't think that's anything to worry about. We all expect some variation in actual spending month to month. What's really important is staying within the budgeted targets for the year. Does that look as if it's going to be a problem?
Megan: I don't think so, but just the same, I'd like to be on the safe side.
Cammy: What do you mean?
Megan: Well, this is what I'd like to do. I want to pay the convention related costs in advance this month. I'll pay the hotel room and convention space and purchase the airline tickets in advance. This way, I can charge all these expenditures in July's budget. This would cause my actual expenses to come close to budget for July. Moreover, when the big advertising campaign hits in September, I won't have to worry about expenditures for the convention on my September budget as well. The convention costs will already be paid. Thus, my September expenses should be pretty close to budget.
Cammy: I can't tell you when to make your convention purchases, but I'm not too sure that is should be expensed on July's budget.
Megan: What's the problem? It looks like 'no harm, no foul' to me. I can't see that there's anything wrong with this, it's just smart management.
Is Megan correct in her analysis of no harm, no foul? How should Cammy respond to Megan's request to expense advanced payments for the convention? Why would this be a problem? Is it simply a timing issue? Should Megan be concerned that her budget could be reduced i the future?
Explanation / Answer
Megan's contention of booking the september expense in July is not right and not in the right direction. This is mainly because there should be a correlation to the expense spent and the benefits received.
There is certainly going to be a hike in the volumes due to advertising campaign in september and this cannot be related to the flat expense spend in September since the part of the expense is pre booked in July.
Being within the budget is a good thing which Megan should understand. This should be clearly explained to Megan's manager about the concerns. There is an element of risk and uncertainty in pre booking the expense of September in July and chances of not happening in September will result in no productivity gains to Starr Computer co.
As per the mathing concept also, there should be expense mapping to the benefits of productivity.