Boston Creamery Case

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Colin Drury, Management and Cost Accounting – Boston Creamery

Boston Creamery
Professor John Shank, The Amos Tuck School of Business Administration Dartmouth College
This case is reprinted from Cases in Cost Management, Shank, J. K. 1996, South Western Publishing Company. The case was prepared by Professor John Shank from an earlier version he wrote at Harvard Business School with the assistance of William J. Rauwerdink, Research Assistant.

This case deals with the design and use of formal "profit planning and control" systems. It was originally set in an ice cream company in 1973, a few years before the advent of "designer ice cream".
Frank Roberts, Vice-president for Sales and Marketing of the Ice Cream Division of Boston
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The fixed costs in the revised profit plan are the same as in the original plan, $1,945,900. The variable costs, however, have been adjusted to reflect the actual volume level of 5,968,000 litres instead of the forecasted volume of 5,720,000 litres, thereby eliminating all cost variances due strictly to the difference between planned volume and actual volume For costs which are highly volume dependent, variances should be based on a budget which reflects the volume of operations actually attained. Since the level of fixed costs is independent of volume anyway, it is not necessary to adjust the budget for these items for volume differences. The original budget for fixed-cost items is still appropriate. Assume, for example, that cartons are budgeted at $.04 per litre. If we forecast volume of 10,000 litres, the budget allowance for cartons is $400. If we actually sell only 8,000 litres but use $350 worth of cartons, it is misleading to say that there is a favorable variance of $50 ($350-$400). The variance is clearly unfavorable by $30 ($350-$320). This only shows up if we adjust the budget to the actual volume level: Carton Allowance Forecast Volume Carton Budget Actual Volume Actual Carton Expense Variance (Based on Forecast Volume) Variance (Based on Actual Volume) = $.04 per litre = 10,000 litres = $400 = 8,000 litres = $350 = $400 - $350 = $50F = $320

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