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Boston Creamery

1. The variance analysis schedule that Frank Roberts


proposed was not necessarily the best representation of
the variances for Boston Creamery. Roberts report
stated a favorable variance of $71,700 coming mainly
from sales volume. He used the revised budgeted
operating income and the original budgeted income to
come up with the sales volume number. The budget
was not detailed as to what accounted for the
differences though. That would be the first change to
the variance analysis report, provide a clearer depiction
of the results. He should show the effect of the changes
in market size. The market size variance was actually
117,642
favorable
(5,968,366-5,720,329).
The
suggestions offered by Jim Peterson can be
incorporated into the schedule without being too
technical. There may be a lot of numbers but the
results are far more informative. By also looking at
month to month changes to sales and operational costs
they would have a better estimate and the figures
would be available sooner rather than waiting until the
spring of 1973. John Vances appendix breaks the profit
planning analysis down month by month and he shows
the importance of tracking actual results. For example,
in January 520,000 gallons of ice cream were actually
sold. They based the analysis on the forecast of only
495,000 gallons. The actual revenues for January are
$28,875 under the forecast for the actual sales. The
earnings statement, which is Exhibit C in the Appendix
to the Case, shows that the actual manufacturing costs
were $593,287 compared to the budgeted costs of only
$570,537. Thus, the variance due to operations was a
negative $22,750. The actual operating profit was only
$92,383 compared to the budgeted $115,133. Thus,
the negative variance due to volume and mix was a

negative $6,125. Adding the two variances gives the


total negative variance of $28,875. While it is intensive
it can show more useful information and can sometimes
provide information that wasnt realized using Roberts
schedule. There were two different approaches taken
therefore providing managers with inconsistent results.
The management team needs to come to together to
provide the approach that will limit the fluctuations in
the budget forecasts and using an approach similar to
John Vances analysis should be enacted.
2. John Parker might schedule the variance analysis
report so that it shows the $99,000U variance that is
attributed to manufacturing in more detail. He
obviously feels that Roberts is only trying to make
himself look better so he would definitely change the
methods used. There are many components that go
into the manufacturing department and to fully
understand the analysis it should be broken down
further. For example, labor had increased due to a new
daily truck loading system. This accounted for $34,400
of the unfavorable results. However, this increase in
cost will benefit the company in the long term because
it provides more customer contact and point of sale
merchandising. There also should be a more in depth
analysis of the variable costs (see below). You can see
that the price variances for milk and sugar of $57,300
and $23,400 were the main drivers of the variable
costs.
| Actual | Flexible | VARIANCE |
Dairy Ingredients | $3,679,900 | $3,648,500 | ($31,400)
|U|
Milk Price Variance | 57,300 | 0 | ($57,300) | U |
Sugar | $599,900 | 596,800 | ($3,100) | U |

Sugar Price Variance $ | 23,400 | | ($23,400) | U |


Flavoring | $946,800 | 982,100 | $35,300 | F |
Cartons | $567,200 | 566,900 | ($300) | U |
Plastic Wrap | 28,700 | 29,800 | $1,100 | F |
Additives | $235,000 | 251,000 | $16,000 | F |
Supplies | 31,000 | 35,000 | $4,000 | F |
Misc. | 3,000 | 3,000 | $0 | - |
Subtotal | $6,172,200 | $6,113,100 | ($59,100) | U |
Total Fix Costs | $652,700 | 612,800 | ($39,900) | U |
Total | $6,824,900 | $6,725,900 | ($99,000) | U |
3. One of the corrective actions I would take for 1974
based on the profit variance analysis would be to
emphasize the importance of forecasting an accurate
budget. There seems to be conflict between the
divisional managers and that should be addressed.
Each person should want to provide the most useful
results and not just the results that are the least
technical. It would also be important to make sure that
each division head knows what their responsibilities are
in the budget analysis. The areas that deserve
commendation in 1973 are obviously the favorable
variances that occurred from within the variable costs
of Flavors and Additives. For example, the largest part
of the operational variance that he accounted for was
due to the milk and sugar price variances. Is this an
area where the company can control costs or it is out of
their control? By showing the sales mix variance for
each product you can get an even more depth look at
the price variances based on mix and where sales
forces should be focusing their attention (see below).

The ice cream mix that had the highest standard


contribution margin also has the lowest number of
gallons. By pushing more advertising expenses towards
this product they could improve profits.
| Standard Contribution Margin | Original Plan | Revised
Plan @ Actual Volume | |
VANILLA | 0.4329 | 2,409,854 | 2,458,212 | 48,358 |
CHOCOLATE | 0.4535 | 2,009,061 | 2,018,525 | 9,464 |
WALNUT | 0.5713 | 48,883 | 50,124 | 1,241 |
BUTTERCRUNCH | 0.4771 | 262,185 | 268,839 | 6,654 |
CHERRY SWIRL | 0.5153 | 204,774 | 261,240 | 56,466 |
STRAWBERRY | 0.4683 | 628,560 | 747,049 | 118,489 |
PECAN CHIP | 0.5359 | 157,012 | 164,377 | 7,365 |
| 0.493471429 | 5,720,329 | 5,968,366 | 248,037 |
4. The main weakness in this approach to management
is that it could lead to ethical issues. As seen in the
case there is tension between Roberts and Parker.
Parker sees Roberts as just trying to make his division
look better. It needs to be made clear by upper
management that teamwork is in is in the best interest
of the organization as a whole. It seems that both
Roberts and Parker might have only been concerned
about their respective divisions. By providing incentives
for each division to accurately forecast their budgets
they can reduce revised budget plans and increase
efficiency. By having management look at budgeted
costs and revenues for actual volume and not projected
volume it can reduce large surprises in ending results.
This type of system can work if the appropriate steps
are taken to ensure efficiency and accuracy.