Boston Creamery

1941 Words Nov 3rd, 2011 8 Pages
Boston Creamery Case Solution
MBA 611
Ryan Grady
In 1973, after the installation of a new financial planning and control system at Boston Creamery, the ice cream division showed a favorable operating income variance of $71,700. In developing the profit plan for 1973, division president (and resident moron) Jim Peterson made the first of a series of inexcusable errors in budgeting surrounding the mythical “favorable” condition. He simply used expected results for the preceding year (as obtained in Oct. 1972), giving no consideration to factors like inflation, market growth, and the fact that sales goals should be expected to increase annually in a successful company. Peterson asked Frank Roberts, inept and underhanded VP of sales and
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The first obvious fallacy in Roberts’ claim is found in the fact that Advertising, with a $29,000 unfavorable variance, actually reports to Roberts, and not to Parker. Why not throw that in next to the other VP’s numbers?
Another misleading figure in Roberts’ report is the favorable variance associated with volume. Yes, production was up for 1973, but this is due entirely to the fact that the size of the total ice cream market jumped from 11,440,000 gallons in 1972 to 12,180,000 gallons in 1973, for an increase in market size of 6.46853%. Production went from 5,720,329 gallons in 1972 to 5,968,366 gallons in 1973, an increase of only 4.33606% (both percentages calculated as the difference in annual figures divided by 1972 figures). Moreover, there was actually a slippage in market share between 1972 and 1973. Boston Creamery controlled 50.000% of total market share in 1972 (5,720,329 / 11,440,000). Market share in 1973 fell to 48.998% (5,968,366 / 12,180,000). Herein lay the weakness of the observation of a favorable volume variance of $117,700. In reality, Roberts’ advertising division spent $29,000 over budget to produce a loss of 1.002% of market share to competition.
Meanwhile, delivery and

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