Boston Creamery Solution
Case Name: Boston Creamery, Inc.
Short Cycle Process:
Who: Frank Roberts, VP Sales & Marketing, Boston Creamery, Inc.
When: December 31, 1973
Where: Case facts not given
Issues:
1. The current variance analysis used for the 1973 fiscal years shows an overall favorable net variance of $71,700. This is an aggregate net figure based upon the favorable variance due to sales and the unfavorable variance due to operations. This net variance figure fails to highlight areas of deficiency to help identify corrective actions. Furthermore, this variance does not indicate the real cause of the favorable overall variance. The success and purpose of variance analysis is reliant on how quickly and effectively it is able to aid in undertaking corrective actions.
In addition to the lack of outputs that could lead to decision-making capabilities, the total favorable variance of $71,700 includes a favorable variance of $117,700 calculated as the difference between the budgeted income at actual volume under the revised plan and the budgeted income at the forecasted volume using the original volume, which neglects to accommodate a consideration for actual income from operations.
As this was the first time Boston Creamery Inc. (BCI) had undergone this type of profit planning and control, they used last year’s actual financial data to budget for 1973 due to a lack of otherwise available information. This budgeting method proved to be ineffective in accurately predicting a sales budget, which is evidenced by the unfavorable flexible-budget variance of $86.973 shown in exhibit 1.
Recommendation: First and foremost, it is recommended that variance analysis should be one of the many tools utilized by BCI in determining performance analysis, but not the only tool. Profit planning and control techniques utilize a wide range of assumptions and estimates and are often times unadaptable to everyday occurrences that will inevitably arise. Other tools such as balanced scorecards
Short Cycle Process:
Who: Frank Roberts, VP Sales & Marketing, Boston Creamery, Inc.
When: December 31, 1973
Where: Case facts not given
Issues:
1. The current variance analysis used for the 1973 fiscal years shows an overall favorable net variance of $71,700. This is an aggregate net figure based upon the favorable variance due to sales and the unfavorable variance due to operations. This net variance figure fails to highlight areas of deficiency to help identify corrective actions. Furthermore, this variance does not indicate the real cause of the favorable overall variance. The success and purpose of variance analysis is reliant on how quickly and effectively it is able to aid in undertaking corrective actions.
In addition to the lack of outputs that could lead to decision-making capabilities, the total favorable variance of $71,700 includes a favorable variance of $117,700 calculated as the difference between the budgeted income at actual volume under the revised plan and the budgeted income at the forecasted volume using the original volume, which neglects to accommodate a consideration for actual income from operations.
As this was the first time Boston Creamery Inc. (BCI) had undergone this type of profit planning and control, they used last year’s actual financial data to budget for 1973 due to a lack of otherwise available information. This budgeting method proved to be ineffective in accurately predicting a sales budget, which is evidenced by the unfavorable flexible-budget variance of $86.973 shown in exhibit 1.
Recommendation: First and foremost, it is recommended that variance analysis should be one of the many tools utilized by BCI in determining performance analysis, but not the only tool. Profit planning and control techniques utilize a wide range of assumptions and estimates and are often times unadaptable to everyday occurrences that will inevitably arise. Other tools such as balanced scorecards