Boston Creamery

1541 Words Dec 9th, 2011 7 Pages

Management needs to determine which costs can be controlled and which costs cannot be controlled. The variance analysis simply showed that there was an unfavorable variance for manufacturing (99,000 U). Manufacturing Cost of Goods Sold must be evaluated individually because of the underlying facets from just a number. This unfavorable number could be caused by either an increase in price or a waste in using the number of unit materials. The materials variance should be broken down into the price variance and the usage variance. Exhibit 1 shows that variable cost and fixed cost were separated and variance was computed. Variable cost was the main culprit of the increase in cost. Here, we can identify that the increase may
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Modification can be made when purchasing raw materials, such as buying in high volume and supplier will lower prices per unit. The fixed costs of sales salaries could be controlled by increasing or decreasing the size of the sales force. They need to explore economies of scale, engineering processes, product mix, and so forth. The controllers’ report of sales variance analysis will be more interesting with the help of Frank Roberts; or else the technicality of the computation may affect the management decision – report too boring.

Market size increased from the forecasted market of 11,440,000 to 12,180,000 (actual), but was not translated equally to the market share for Boston Creamery. The actual size increased by more than 6%, however, Boston Creamery’s actual market share decreased by 1%. Problem with the forecast was that the Company was complacent on using the same estimate of 1972 actual gallon sales. As stated in the case, 1973 budgeted share was done in October of 1972, since final figure was not available yet. Though sales volume increased from 5,720,329 gallons budgeted to 5,968,000 gallons actual, it did not serve the company well. Boston Creamery must conduct a more accurate market research.

Frank Roberts is asked by Jim Peterson to make a short presentation at the next management meeting commenting on the major reasons for the favorable operating income variance of $71,700; problem arises from the operating income variance as it

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