Management Accounting Memo Essay
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Mr. Blackheath had promoted Lee High to vice president of finance. Lee had practically been running the firm for several years during which time sales and profit had been declining. On November 15, 1977, Mr. Blackheath announced that his son. Trafalgar Blackheath, would take over as owner and president on January 1, 1978. Trafalgar was a graduate of an MBA program and for several years had been working for a large consulting firm as a marketing specialist. In their private discussions Mr. Blackheath told his son that the problems in the family firm were marketing rather than financial, so the situation was ready made for Trafalgar.
Mr. Blackheath, it seems, had been completely taken by Lee High. When Trafalgar finally arrived on December 1, 1977, and began to read various internal reports he realised Blackheath Manufacturing Co.
did not have a cash budget and there didn’t seem to be much in the way of financial planning.
Trafalgar asked Lee High about this. Lee’s response was that Blackheath Manufacturing Co. ran on the basis of several well-developed decision rules and budgets weren’t necessary because if the firm ever ran out of funds, Mr. Blackheath simply deposited £10,000 or £20,000 in the bank. Trafalgar’s response was swift and clear: “My father is a millionaire, but I am not!” Lee indicated he didn’t know much about budgeting but he would get an assistant to work up some “stuff.” Trafalgar decided to call his old friend Crofton Brockley. Brockley was in charge of several large budgeting projects for a consulting firm and Trafalgar knew Crofton to be a recognized expert on budgeting for small companies. Fortunately for Trafalgar, Brockley wasn’t busy that week and was able to travel down the next day.