Agm.com Case Analysis
1. What were the factors that caused actual quarterly income to be less than budgeted? What was the quantitative effect of each of these factors?
- In order to find out the factors that caused the less actual quarterly income, we did analysis on variances. Sales variance, production cost variances and overhead variances are calculated as follows:
- Sales Variance Actual
Quantity Sold(Unit) Budgeted
Quantity Sold(Unit) Price
($) F/U Quantity
Round 22 25 1100 1000 (3300) U 2500 F
Square 35 34 3900 4000 3900 F (3400) U
Oval 42 45 2250 3000 (6750) U (33750) U
Total 7250 8000 (6150) U (34650) U
o Figures in bracket are…show more content…
o In production costs variance chart above, Direct labor price variance(sum of direct labor variances of round, square and oval) valued at $14,913, and Oval production cost variance valued at $8,381. o It is mainly because of the booming economy which caused raise in direct labor cost
- Overhead variances calculation not included, since it hardly has any impact on the income
- In conclusion, the factors related to Oval production and sales are the main factor s for the decrease in income.
2. For which of these factors, if any, should Marelie be held responsible?
- As mentioned in the case, Marelie is the CTO of the parent company and the president of ‘agm.com’, and is in charge of process improvement and partially involved in marketing.
- Among the factors pointed out in Question 1., Oval sales price and quantity sold variance is the biggest and Marelie should be held responsible for it. It is probably because of the wrong estimation on the loss during the strike week. She estimated the loss to be 5% in unit sales (about 400 baskets) however, total decreased of unit sales was around 10%. We cannot be certain that the total 10% decrease was due to the strike, but we think the percentage decrease in sales due