Boston Creamery
Case 4: Boston Creamery
Introduction
A new financial planning and control system is only as good as a company’s capacity to implement it effectively. But most importantly, many employees see the new system as an end in itself, instead of a means to an end. The way standards are formulated play a crucial role in the results of these variances. For instance, management decided to use the sales forecasts based on what they made and incurred in the previous year. This would normally be the case, if the company had limited growth prospects. Reporting in aggregate may not allow a company to dissect operations appropriately, as to which areas need to be rewarded, and those that need to be assisted. For instance, the extent of increased operating income can partly be traced to an increase in price. Conflicts become inevitable when there is a lack of coordination among departments, just like the conflict between Frank Roberts and John Parker. The orientation seems to be department-based. While that is one consideration, this may adversely affect management’s decision-making process that subsequently trickles to the whole company.
Problem
How should the company formulate, compute and report its variances? How should these variances be interpreted? What actions should management take based on the interpretation of these variances?
Areas for Consideration
We evaluate Boston Creamery’s profit planning and control system by determining its effectiveness in addressing management and company needs. Since Roberts prepares the variance analysis schedule, most of the information may only be useful to those in the sales, marketing and advertising department. For instance, costs adjusted to actual volume eliminated cost variances resulting from deviations between planned and actual volume. Those eliminated variances may be of use to the manufacturing division in explaining what causes certain results in their operations, may they be favorable or unfavorable.
Introduction
A new financial planning and control system is only as good as a company’s capacity to implement it effectively. But most importantly, many employees see the new system as an end in itself, instead of a means to an end. The way standards are formulated play a crucial role in the results of these variances. For instance, management decided to use the sales forecasts based on what they made and incurred in the previous year. This would normally be the case, if the company had limited growth prospects. Reporting in aggregate may not allow a company to dissect operations appropriately, as to which areas need to be rewarded, and those that need to be assisted. For instance, the extent of increased operating income can partly be traced to an increase in price. Conflicts become inevitable when there is a lack of coordination among departments, just like the conflict between Frank Roberts and John Parker. The orientation seems to be department-based. While that is one consideration, this may adversely affect management’s decision-making process that subsequently trickles to the whole company.
Problem
How should the company formulate, compute and report its variances? How should these variances be interpreted? What actions should management take based on the interpretation of these variances?
Areas for Consideration
We evaluate Boston Creamery’s profit planning and control system by determining its effectiveness in addressing management and company needs. Since Roberts prepares the variance analysis schedule, most of the information may only be useful to those in the sales, marketing and advertising department. For instance, costs adjusted to actual volume eliminated cost variances resulting from deviations between planned and actual volume. Those eliminated variances may be of use to the manufacturing division in explaining what causes certain results in their operations, may they be favorable or unfavorable.