On variance for “Profit planning and control” systems

Boston Creamery Case Study

Participants Neeta Pai B018Kishori Sawant B038Kavita Shetty

B027Alpana Pawar

B039Vishal Agarwal B001Karan Mehta

B015

Boston Creamery Case Study Case deals with design and use of formal profit planning and control

systems. It was originally set in an ice cream company in 1973, a few years before the advent of “Designer Ice cream”.

Case Study revolves around four characters:

Jim Peterson – President

Frank Roberts- Vice President for Sales and Marketing

John Parker – Vice President for Marketing and Operations

John Vance (CPA)- Controller

Boston Creamery Case Study Boston Creamery is an Ice cream Company which manufactures and

distributes ice cream to wholesalers and retailers.

A new Financial Planning and control system has been installed to compare budgeted results against actual results.

The tool is used to highlight things that needed corrective actions or commend things that resulted in a favourable overall variance.

What is Variance Comparison between actual and budgeted performance.

Variance can be Favorable or unfavorable.

It helps to trace the origin and causes of unfavorable variances.

Success of variance analysis depends on how quickly and effectively the corrective actions can be taken and analyzed.

Calculation of variances is not an end in itself but means to the end.

Act -1

Jim Robertson- PresidentFrank Roberts- Vice President for Sales and

Marketing

Favorable variance due to salesVolume 117700 FPrice 12000 F 129700 F

Unfavorable Variances Due to OperationsManufacturing 99000 UDelivery 54000 FAdvertising 29000 USelling 6000 FAdministration 10000 F 58000 U

Net Variance Favourable 71700 F

VARIANCE ANALYSIS($)As per Marketing VP

Earnings Statement Actual Flexible Budget ($)Sales-Net 9,657,300 9,645,300 12,000 Manufacturing Cost 6,824,900 6,725,900 (99,000) Delivery 706,800 760,800 54,000 Advertising 607,700 578,700 (29,000) Selling 362,800 368,800 6,000 Administrative 438,000 448,000 10,000 Total Expenses 8,940,200 8,882,200 Income from Operations 717,100 763,100

Exhibit 1Computations figuring out the variances for operations

Draft submitted by Marketing VP

Act -2

Jim Peterson – President John Parker – Vice President for Marketing

and Operations

Uncontrollable Actual FlexibleMarket Growth 167600 F 167600 F

Unfavorable Variances Due to MarketingMarket Share 55300 UProduct Mix 6000 FSales Prices 12000 FPurchase Prices 80700 Uselling 362,800 368,800 6,000 Fadvertisement 607,700 578,700 (29,000) U

124000 U 124000 U

Favourabe Operation VariancesDelivery 54000 FAdministration 10000 FAll other operating variances -18300 u

45700 F 45700 F

Variance Analysis ($)As per Operations VP

Market Growth = STD Margin * (Budgeted Industrial Volume - Actual Industrial Volume ) * Market share.

Market Growth = 0.4539 * (11440000-12180000) * 0.5 = 167600 (F)Market Share = STD Margin*(Budgeted Volume in liters -Actual Volume in liters)

Actual Growth in Market Share = 0.4539 * (5720000 - 5968000 ) = 112567

Proposed Growth in Market Share = 167600 Variance = 167600 - 112567 = 55300 approxTotal Manufacturing cost = Budgeted Manu. Cost - Actual Manu. Cost = (99,000)

Manufacturing cost deducting cost incurred by wrong forecasting = 99,000 – 80,700= 18,300

Draft submitted by Operations VP

Product Mix

Vanilla = 0.4329 (2513952-2458212) 55,740.00 = 24,129.85 A

Chocolate = 0.4535 (2096174-2018525) 76,435.00 = 34,663.27 A

Walnut = 0.5713 (50980-50124)= 502 A

Butter Crunch = 0.4771 (273550-268839) 4,711.62 = 2,249.00 A

Cherry Swirl = 0.5153 (213637-261240) 47,602.80 = 24522 F

Strawberry = 0.4683 (655813-747049) 91,235.17 = 42,725.00 F

Pecan Chip = 0.5359 (163820-164377) 556.97 = 298.00 F

(6,000.88) F

Mix Variance ProductsSTD Margin(Revised std.sales quantity-Actual Sales quantity)

Act-3Jim Peterson – President

Frank Roberts- Vice President for Sales and Marketing

John Parker – Vice President for Marketing and Operations

John Vance (CPA)- Controller

Variance Analysis as per John Vance

Uncontrollable Market Growth 167600 FDelivery System 54000 FManufacturing Labor 34400 U

187200 F

MarketingSales Prices 12000 FPurchase Prices 80700 UMarket Share 55300 Uselling and advertisement 23000 UProduct Mix 6000 F

141000 UOperationsPoor Dairy Yield 31400 UPoor Sugar Yield 3100 UQuality Control on additives and Flavors 51300 FAll others 9000 F

25800

Variance Analysis $As per Controller

Actual Flexible Variance ($)Variable CostsDairy Ingredients 3,679,900 3,648,500 (31,400) UMilk Price Variance 57,300 - (57,300) U ($)Sugar 599,900 596,800 (3,100) U 57,300 Sugar Price Variance 23,400 - (23,400) U 23,400 Flavoring 946,800 982,100 35,300 F 80,700 Cartons 567,200 566,900 (300) U

Plastic Wrap 28,700 29,800 1,100 FAdditives 235,000 251,000 16,000 FSupplies 31,000 35,000 4,000 FMiscellaneous 3,000 3,000 - FSubtotal 6,172,200 6,113,100 (59,100) U

Total Fixed Costs 652,700 612,800 (39,900) U

Total 6,824,900 6,725,900 (99,000) U

Labor 425200 390800 -34400 Ulabor-other 41800 46000 4200 fRepairs 32200 25000 -7200 uElectricity 41500 40000 -1500 uSpoilage 31000 30000 -1000 u

Manufacturing Cost of Goods Sold

Manufacturing Cost of Goods Sold

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