WoodCrafts Inc. Cost Variance Analysis

Marval Products - Long-Term Product Strategy and Annual Budget

• Marval Products produces and sells luggage in soft-side and molded types, with various pieces in each line.

• Some lines are designed for men or women, some are unisex.

• Lines are discontinued or introduced based on changing tastes or improvements.

• Marval also manufactures luggage for large retail companies under their private labels.

• When reviewing long-term product strategy, Marval Products considers:

• The current and expected state of the economy.

• The current and future availability of resources like manpower, plant, equipment, and capital.

• Consumer attitudes regarding product appeal, travel trends, lifestyles, and affluence.

• Industry sales levels.

• Marval’s current and projected market shares.

• Marval's industry influence.

• Product lines related to production, project length, and resource and plant capacity utilization.

• Factors for developing the annual budget's sales component include:

• Pricing strategy.

• Market share.

• Consideration of competitors.

• Product sales mix for maximum contribution.

• Production capacity.

• Advertising impact.

• National and international economic conditions.

Stark Manufacturing - Departmental Budgeting

• Stark Manufacturing, a division of Davis Corporation produces and sells leather goods to wholesalers and retailers.

• Davis sent an internal audit team to Stark to perform a routine review of operations.

• The audit report contained observations, recommendations, and a preliminary management response.

• Currently, Stark does not utilize departmental budgets due to a lack of automated systems.

• Historically, control has been managed via a total plant concept instead of a departmental approach.

• Increased competition, declining profits, deteriorating margins, and increased costs necessitate cost reduction.

• It is suggested that Stark implement flexible departmental expense budgets and monitor and explain deviations from targets as part of the regular agenda at the weekly production meetings.

• As an interim measure, Stark will use monthly operating budgets to determine efficiency targets and labor usage objectives.

• The company president seeks suggestions on implementation of a departmental budgeting system.

• The benefits of departmental budgeting for Stark, besides cost control::

• Improved goal congruence as each department will participate in understanding the planning and goals, thereby improving the overall planning process.

• Improved communication and coordination among departments.

• Easier assignment of responsibility and accountability with formalized planning, goals, and duties.

• The introduction of departmental budgeting may have positive and negative impacts on departmental managers.

• Positive impacts

  • Increased motivation
  • Increased acceptance of performance

• Negative impacts -Apprehension and resistance to change. -Concern about the comparison of actual results to budgeted figures negatively affecting performance evaluation.

• Production workers may be more motivated if departmental managers accept budgets and participate in planning, if it leads to rewards it will increase motivation.

• Negative reactions can happen if the budget is imposed or goals seem unattainable.

• Steps for Stark Manufacturing to improve the budgeting system acceptance:

• Display top management's support for the new procedure.

• Increase communication with all affected employees explaining the reasons for the change.

• Provide outlets for feedback and be responsive to employee questions and suggestions.

• Change budgetary restrictions when condition changes.

Nile River Company - Master Budgeting

• Great Rivers International operates globally, entering the African market via its Nile River Company subsidiary.

• Nile River Company has completed building its pharmaceutical plant in Africa.

• Total project cost $26.1 million.

• Building = $10.0 million.

• Machinery and equipment = $15.0 million.

• Furniture and fixtures = $0.5 million.

• Vehicles = $0.2 million.

• Working capital = $0.4 million.

• The next year is the first of operation.

• Management is translating a strategic plan into a master budget with the finance manager in charge.

• Master Budget Definition: An organization's operating and financing plan for the upcoming period, translating short-term objectives into action steps.

• Steps in the Budgeting Process:

• Form a budget committee.

• Determine the budget period.

• Specify budget guidelines.

• Prepare the initial budget proposal.

• Negotiate the budget.

• Review and approve.

• Revise the budget.

• Sales Budget-regarded as the cornerstone of the master budget.

• It’s the first budget to be completed.

• Used to derive the production budget and all other budgets for the company.

• Budgets that should be prepared for budgeted net operating income aside from the sales budget:

• Cost of goods sold budget.

• Selling, general and administrative expenses budget.

• Successful budgeting process

• Department managers participate with upper management in preparing their own budgets.

• Top management believes the budget program is an essential part of the company's activities.

Nile River Company Budgeted Production Quantity Example

• Formula is to add budgeted sales to desired ending inventory and subtract beginning inventory. Budgeted units to sell = 10,000 Sales growth during the second year of operation = 5% so we use to calculate 30% ending in 1st year Desired ending inventory (in units) = next year end inventory which is 30% of next year sells 10,000 * 1.05 * 30% Beginning will b zero since its the first year of operation. Budgeted production production = 10,000 + 10,000 * 1.05 *.3% -0 = 13,150

Lasertech - Strategic Planning Budgeting

• Lasertech is a startup company by friends out of medical school looking to use laser technology for hospitals

• Struggling Sales

• Consultant comes in and recommends formal budgeting process to improve performance

• Strategic Planning - Strategic planning involves setting long-term goals for 30-5 years into the future and and prepare long-term budgets

• Need to make objectives and plan for the functions of departments for the company.

• Also need to focus long term goals on short term goals for control. marketing and financial functions to focus on a short term goal to control it. Control all functions to objectives are attainted.

• In most successful budget programs, managers participate with upper management in preparing their own budgets.

• Management should use rather than us the budget as a goal, management should budget to set goals, measuring results and determining areas that need intention and be a achievable but tough challenges.

• Budget can coordinate company because dept managers now have to consider how dep functions are interrelated. Planned focus will affect manufacturing, marketing and affects finance.

• Flexible Budgeting

• Variance are now shown against actual amount vs the flexible budget amoutns, vs static budget

• Project, Activity based, 0 based, Continuous are more budget types.

Sara Hall - Ideal Standards and Budgetary Slack

• Growing Business

• SARA heard about Budgeting and doesn't have a formal process now and no accounting team

• She has some prodcution practices that company can produe max number of toys each month.

• Characteristics that define successful budgeting processes include:

• Top management involvment -Participaticaptart and

• Coordination between fucntions / communication/

Using different budgets for planning the behavioral/ Motivational. Clear goals and expectations at beginnign

• Actual vs ideal
• Stock puts for lost cutsomer/
• The budget is cushion so employees make/ can exceed
• Reduce this with better plans
• Prodution budget month of november- assume

Stark Inc, - Sales Budget Role in annual Profit Plan

• Plumbing and supplies, executive reviewed then set prodtuon targets then budgeted sales

• targets were not attainable because understimating competitor, road contriction

• Company overproduced because of error

• The inaccuracy was because of bad forecast so budget will not be good.

• The sales budget should consider: current sales level and trends

• Compeitive actions

• company faled to consider 2 things

• Budget order was set- production should be set based on sales, vs the reverse Down top (authority budget)/ bottom (participate budget) *review- This company used the authotity

Review- 5 questions: What type of budget review- Budget Commiteer etc

Is there any finicailal effect

Coe - Semi Motorcylces

90% Learning corves by culumative and 2 two eng effects it has and calculate some

2negative- budget easy and top managemet miself

Law Services - Variance Calculations

• Flextible bdugetY
• Calculate vriance expenses variance
• is it volume or or fleible variance
• explain 7: case 12 - mountain retail store analysis- define responsibilitys
• caluclatons contrib margins

improve this by what?

maxwell machinery- labor inputs in mxing

• maxwzzell can further ana
• Rachlle Smith and Company
• which has higher margins? why?
• what are improvements?
• how to cut costs
• frequnecy times per year can be shipped
• From the cutomers pt of vciew- what are benefits?
• can ship less, reduce costs, better for enviornment

how does it impact the organization to use

• can see what the
• make decionn
• Arklian
• what is benefit
• limitations
• Inman

The goal of the company

Barton Chemcial

• why did volume

• how to improve

• Rosewood textile *explain process/ identify what would suit if Rosewood became mass producting how unit costing vs a

• job vs process,

• how does it differ with variable and absoraption process

• what is curve

• formula for last calculation

• Holt

• What to do at years end, 2 diff methods etc, that will help?

• what to do at years end w? -what is benefifical, 2 changes that will help?

• Standard lock analysis with Smith

• find control deificineis

• how can it be more effective?

• Accubrake

• The CFO and other stuff to help the company etc.

• Aceme Retail

• What is encryption to help with fraud?

Logan assocaite - What is internal with small company

• what is encryption to help with fraud?

WOLFE SUPPLY

• what did he do with

What can protect? Why can't they have

• what can protect?
• what ca

Data, Technology and Annnlysis and risk

• Remember everything for 6101! Don't freak just remember everything

Good Luck!

Analysis of WoodCrafts Inc.'s cost system identifies a favorable variable expense variance. This suggests that actual expenses were lower than budgeted. Implementing ABC could refine product line profitability analysis, particularly regarding fixed overhead allocation.