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Strategic Cost Management

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Berkshire Toy Company case questions

1) Using the variance analysis framework developed in class, perform a revenue variance analysis for (i) retail & catalog revenues, and (ii) wholesale revenues. For each analysis, report all five variances (total, activity, mix, price, and revenue), and label each one as either favorable (F) or unfavorable (U). (No label is needed if variance is $0.)

Budgeted Sale Mix:
Retail & Catalog = 238,000/280,000 = 85% ($49.00)
Wholesale = 42,000/280,000 = 15% ($32.00)
Actual Sale Mix
Retail & Catalog = 174,965/325,556 = 53.74% ($49.00)
Wholesale = 45,162/ 325,556 = 13.87% ($32.00)

Retail & Catalog Revenues:

Wholesale Revenues:

2) Using the information below, calculate the bonuses earned by David Hall, Rita Smith, and Bill Wilford.

David Hall’s (Purchasing manager) bonus = 20% Net Materials Price Variance (if the variance is favorable)
Net Materials Price Variance = $20,428 F + $25,181F + $48,183F +$6,317F - $26,946U = $ 73,163 F
David Hall’s bonus = 20% x $73,163 = $14,632.6

Rita Smith’s (Marketing manager) bonus = 10%(Act. Net Revenue – Budg. Net Revenue)
= 10% x [($14,446,487-$1,859,594-$5,023,192) - ($13,006,000-$1,218,280-$4,463,000)]
=10% x $238,981
=$23,898.1
Rita Smith’s bonus = $23,898.1

Bill Wilford’s (Production manager) bonus = 3% [Net Efficiency Variance (materials, labor, variable overhead) + Labor Rate Variance + V&F Overhead Spending Variances] (if favorable)
Net Production Efficiency Variances + Net Production Rate/Spending Variances = $1,171,859 Unfavorable
Bill Wilford’s bonus = $0

3) What role do you think the new incentive compensation plan played in how the purchasing, marketing, and production departments performed?

We think the new incentive compensation plan put three departments into isolated positions. In the compensation plan, among all those conditions for…...

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