Boston Creamery
1. The variance analysis schedule that Frank Roberts proposed was not necessarily the best representation of the th e va vari rian ance ces s fo forr Bo Bost ston on Cr Crea eame mery ry.. Rob ober erts ts’’ rep epor ortt stated a favorable variance of $1!"" comin# mainly from fr om sa sale les s vo volu lume me.. e us used ed th the e rev evis ised ed bu bud# d#et eted ed operatin# income and the ori#inal bud#eted income to come up with the sales volume number. The bud#et was not detailed as to what accounted for the di%erences thou#h. That would be the &rst chan#e to the variance analysis report! provide a clearer depiction of the results. e should show the e%ect of the chan#es in market si'e. The market si'e variance was actually 11!()* favorable +,!-(!/((0,!*"!/*-. The su##estions o%ered by 2im 3eterson can be inco in corp rpo ora rate ted d in intto th the e sch che edu dulle wit itho hou ut be bein in# # to too o tec te chn hnic ical al.. Th The ere may be a lot of num umbe bers rs bu butt the res esul ults ts ar are e fa farr mo morre in info form rmat ativ ive. e. By al also so lo look okin in# # at month to month chan#es to sales and operational costs they th ey wo woul uld d ha have ve a be bett tter er es esti tima mate te an and d th the e &# &#ur ures es would be available sooner rather than waitin# until the sprin# of 1-/. 2ohn 4ance’s appendi5 breaks the pro&t plannin# analysis down month by month and he shows the importance of trackin# actual results. For e5ample! in 2anuary ,*"!""" #allons of ice cream were actually sold. They based the analysis on the forecast of only )-,!""" #allons. The actual revenues for 2anuary are $*!, under the forecast for the actual sales. The earnin#s statement! which is 65hibit C in the 7ppendi5 to the Case! shows that the actual manufacturin# costs were $,-/!* compared to the bud#eted costs of only $,"!,/. Thus! the variance due to operations was a ne#ative $**!,". The actual operatin# pro&t was only $-*!/ $-* !// / com compar pared ed to the bud bud#et #eted ed $1 $11, 1,!1/ !1//. /. Thu Thus! s! the ne#ative variance due to volume and mi5 was a
ne#ative $(!1*,. 7ddin# the two variances #ives the total ne#ative variance of $*!,. 8hile it is intensive it can show more useful information and can sometimes provide information that wasn’t reali'ed usin# Roberts’ schedule. There were two di%erent approaches taken therefore providin# mana#ers with inconsistent results. The mana#ement team needs to come to to#ether to provide the approach that will limit the 9uctuations in the bud#et forecasts and usin# an approach similar to 2ohn 4ance’s analysis should be enacted. *. 2ohn 3arker mi#ht schedule the variance analysis report so that it shows the $--!""": variance that is attributed to manufacturin# in more detail. e obviously feels that Roberts’ is only tryin# to make himself look better so he would de&nitely chan#e the methods used. There are many components that #o into the manufacturin# department and to fully understand the analysis it should be broken down further. For e5ample! labor had increased due to a new daily truck loadin# system. This accounted for $/)!)"" of the unfavorable results. owever! this increase in cost will bene&t the company in the lon# term because it provides more customer contact and point of sale merchandisin#. There also should be a more in depth analysis of the variable costs +see below. ;ou can see that the price variances for milk and su#ar of $,!/"" and $*/!)"" were the main drivers of the variable costs. < 7ctual < Fle5ible < 47R=7>C6 < ?airy =n#redients < $/!(-!-"" < $/!()!,"" < +$/1!)"" <:< @ilk 3rice 4ariance < ,!/"" < " < +$,!/"" < : < Au#ar < $,--!-"" < ,-(!"" < +$/!1"" < : <
Au#ar 3rice 4ariance $ < */!)"" < < +$*/!)"" < : < Flavorin# < $-)(!"" < -*!1"" < $/,!/"" < F < Cartons < $,(!*"" < ,((!-"" < +$/"" < : < 3lastic 8rap < *!"" < *-!"" < $1!1"" < F < 7dditives < $*/,!""" < *,1!""" < $1(!""" < F < Aupplies < /1!""" < /,!""" < $)!""" < F < @isc. < /!""" < /!""" < $" < 0 < Aubtotal < $(!1*!*"" < $(!11/!1"" < +$,-!1"" < : < Total Fi5 Costs < $(,*!"" < (1*!"" < +$/-!-"" < : < Total < $(!*)!-"" < $(!*,!-"" < +$--!""" < : < /. ne of the corrective actions = would take for 1-) based on the pro&t variance analysis would be to emphasi'e the importance of forecastin# an accurate bud#et. There seems to be con9ict between the divisional mana#ers and that should be addressed. 6ach person should want to provide the most useful results and not ust the results that are the Dleast technicalE. =t would also be important to make sure that each division head knows what their responsibilities are in the bud#et analysis. The areas that deserve commendation in 1-/ are obviously the favorable variances that occurred from within the variable costs of Flavors and 7dditives. For e5ample! the lar#est part of the operational variance that he accounted for was due to the milk and su#ar price variances. =s this an area where the company can control costs or it is out of their control By showin# the sales mi5 variance for each product you can #et an even more depth look at the price variances based on mi5 and where sales forces should be focusin# their attention +see below.
The ice cream mi5 that had the hi#hest standard contribution mar#in also has the lowest number of #allons. By pushin# more advertisin# e5penses towards this product they could improve pro&ts. < Atandard Contribution @ar#in < ri#inal 3lan < Revised 3lan G 7ctual 4olume < < 47>=HH7 < ".)/*- < *!)"-!,) < *!),!*1* < )!/, < CCH7T6 < ".),/, < *!""-!"(1 < *!"1!,*, < -!)() < 87H>:T < ".,1/ < )!/ < ,"!1*) < 1!*)1 < B:TT6RCR:>C < ".)1 < *(*!1, < *(!/- < (!(,) < C6RR; A8=RH < ".,1,/ < *")!) < *(1!*)" < ,(!)(( < ATR78B6RR; < ".)(/ < (*!,(" < )!")- < 11!)- < 36C7> C=3 < ".,/,- < 1,!"1* < 1()!/ < !/(, < < ".)-/)1)*- < ,!*"!/*- < ,!-(!/(( < *)!"/ < ). The main weakness in this approach to mana#ement is that it could lead to ethical issues. 7s seen in the case there is tension between Roberts and 3arker. 3arker sees Roberts as ust tryin# to make his division look better. =t needs to be made clear by upper mana#ement that teamwork is in is in the best interest of the or#ani'ation as a whole. =t seems that both Roberts and 3arker mi#ht have only been concerned about their respective divisions. By providin# incentives for each division to accurately forecast their bud#ets they can reduce revised bud#et plans and increase eIciency. By havin# mana#ement look at bud#eted costs and revenues for actual volume and not proected volume it can reduce lar#e surprises in endin# results. This type of system can work if the appropriate steps are taken to ensure eIciency and accuracy.
