P10-9 Performance Evaluations (M324) - Objs. 2, 5
The Promotion and Advertising Department at Jefferson Corporation coordinates point of purchase promotions for its distributors. Employees of this department are graphic arts or marketing majors who develop campaign materials and conduct market research. The department does not collect any revenue for these services. The department manager is evaluated based on the department's ability to operate within its budget. For the last several years, the manager has had to curtail many promotional programs a month before year-end in order to stay within budget.
Sales personnel, marketing representatives, and customers frequently complain when these services are terminated. Dan Beck, the department manager, told a colleague, "I hate taking all this heat every year. But I just can't afford to blow the budget." He also noted that "soon the new budget will be out, and I can give everyone what they want!"
Required
A. What type of responsibility center is the Promotion and Advertising Department?
The Promotion and Advertising Departments are both cost centers.
B. How is the department currently being evaluated? What are the important elements on which the department should be evaluated?
The department is currently being evaluated on its ability to control costs.
C. What appear to be the reasons for the department's budget problems? What implications does this have for the company?
The reason for the department's budget problems appears to be that the manager has to curtail many promotional programs a month before year-end in order to stay within budget. This suggests that the department may not have enough allocated funds in their budget to cover the expenses of the promotional programs throughout the year.
The implications for the company are that the termination of these services can lead to complaints from sales personnel, marketing representatives, and customers. This could negatively affect the company's relationships with its distributors and harm its overall marketing efforts. It may also impact the company's ability to compete effectively in the market if its competitors are able to maintain their promotional programs consistently.