Budgeting and Performance Evaluation

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Issues in Accounting Education Vol. 15, No. 2 May 2000 Budgeting and Performance Evaluation at the Berkshire Toy Company Dean Crawford and Eleanor G. Henry ABSTRACT: This case1 provides an opportunity to study budgets, budget variances, and performance evaluation at several levels. As a purely mechanical problem, the case asks for calculations of various price, efficiency, spending, and volume variances from a set of budgets and actual results. The case is also an interpretive exercise. After the variances have been computed, the next step is to develop plausible conjectures about their likely causes. Finally, it is a case about performance evaluation and responsibility accounting. The company has an incentive plan, based on the budget…show more content…
Crawford and Henry 285 ever. Customers love our product and respect our quality. There must be a way to make this business work and turn a profit, too. The budget variances should provide some insights. Could you do an analysis of the budget variances?” The Berkshire Toy Company was founded by Franklin Berkshire, Janet McKinley’s father, in 1974. Berkshire was an industrial artist who enjoyed making stuffed animals in his spare time. His first creation, a teddy bear that he presented to Janet on her seventh birthday, occupies a place of honor at Berkshire Toy Company’s headquarters. In 1974, Frank Berkshire acquired an old pneumatic pump that had been used to fill life-jackets for the Navy during World War II. He modified the machine to mass produce stuffed animals, and the Berkshire Toy Company was born. The company started small at first, but grew quickly as Berkshire’s reputation for quality spread. By 1986, annual sales exceeded a million dollars for the first time. Janet McKinley had learned the business from the bottom up. She had started out with the company in the mail room as a part-time summer employee. As a college student, she had spent summers and Christmas
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