Eauiers ICE CREAM DIVISION Enininge Siateren December 31, 2000, Mere Yearso-omte Actual Fleibe Bucget Actual Flexible Busget Selee-et se6s7s00 $9645.300 Manutecturing Cost (Schedule A-28) 6,824,800" 6,725,900 Detvary (Schedule 83 706,800 7601800 Averiaing (Senoaule &-<) 607,700 578,700 eling (Sehacle A) 362.800 368,200 Total Expenses saow200 — $8.882200 Income trom Operations $717,100 ‘$763,100 Varlanes Analyste In Exhint 3. uerr 2 Ice CREAM DIVISION Senedue: Manufacturing Cost of Geods Sold December 312000, Actusl "Flexible Actual Place Budget Bueget arabe Coste Datry Ingredien's $3673.30 548,500 ak Pree Varanco 57300, Sige 589300, 596,800 Suga’ Price Variance 23.400, Flavoring Incusing Frut and Nuts) 96 800 82,100 Cartons 567200 566'300 ate Was 29,800 Acdtves 281/000 Supplies 35,000 Migeetancoue 3.000 3000 Subtotal 96.172209 3.100 Fined Costs Labor-Cartonaing and Fressing™ $426 200 FRepai 32200, Deprecaton 81.000 ‘SpolagEvery morning each rout sales delivery driver loads the tuck tom inventory, based on today’s sales orders, before leaving the plan. Drivers spend up to 2 hours each day loading ‘me tuck beroe tey can beg ter sais rout. Aner: Carton hancing workers sort ealy producton each day onto pales grounes by delivery tuck ‘ated on tomorow’s sles orcers, TVs subst owe” cost factory taber or Mgrer cost Aver labor or oad the tucks and also fees up some diver time each day for more tustemer contact ang point of sales exter 3 Analysis of Variance from Forecasted Operating income Mont 1) Atal Income trom Operstons 2) Budgeted Income at Forecasted Volume 3) Buageted Income at Actual Volume Veriance Due to Sales Volume and Mx (3) minus (2) Variance Due to Operations ((}) minus (3) Teta vi ne (1) minus S71 700F APPENDIX This description of he financial planning end conti! system mana 12n from e company operating The Financial Planning and Control System for the Ice Cream Divi The beginning point in making a promt lan is separaing cost int ued ana varie categores. Pure varebe costs requre an acetona arcunt with eech icreese In volume. The mareger as Iie onto! ever he fe of coat eter than to aveld wast, The accountant can ees termine Yarable manutectuing cot per unit for any gen product or package by using current prices and Yel, Verlable marketing cat per units Baved onthe allowable rate (or examale,$.06 pe ire fo fasvertang). Coste nat are rot pure varabo are clscemed se fired but they, t,t ary fsignficont changes In voume occur There wil be varying dagees of sent to volume changes mang these cost, ranging from a pont uct short of pure variable to an extremely fixed ype of feipencs wich has no relatonsrip fe volume. ‘The reason fer aterentating between fied an varanle co empnatcal le because variable co spending requires ro decisien, tls dtated by vouime. Fired costs, on the other hand, requre mmanagemert judgment and decision to ncreace or decrease the pending. Sugar isan exam of 8 ure varabe coet Seen charge in lume hil automates bring a cnange in the sugar coct ony the [Pets car be contoled Route selesmen'ssalares would be an example oa fred cost that fay Sanstive fo volume, ut nat pure varable. As lume changes, pressure wil e fe fo Increase or decrease tis expense, but managerren! must make the dcisien; ihe change in cot level sno! azomate. Depreciation charges for plant would be an example of eltvely extreme fed cost. Very large Inereaces in vlume car ucualy be realized before ts type of sot is pressured t change, In both cases of fred cost a decision om management is required to increase or decrease the cost. ins alemma that management Is constant facing: to withstand the pressure fo nerease or be toms ike route salesmen salaries or depreciation, based on past perfomance, because they must constant be evauated for Deter and oe eilart methogs o org tre task ‘Advertsing isthe only cost element ct fing the explanation of a variable cost given inthe frst Deragrann Aavertaing sets are eet by manageren: cecsion rner ran beg.an “automate costtem tke sugar or packaging. tis sense, acvertsrg is ike route salesmen's expense. For our company, however, management has decided tat the alowance for advertising exzence i equal tO 5.08 por nre forte actual number oF Ie cow. Ths marsgomart decison, noreore, Nae ranstormed advertising ito an expense wich is reaed ag vanabla for prot planning uposes Fooning isan example of te four-step approach to one-year prt planning. The frat step in planing isto develspe un standard coat for each element of variable cost. by proavel an package ste. Exarrpes of vo dferert packages or cre product are shown below. AS ‘ready pated out the accourtart can do ths by using curet prices end yels for materal costs fre current siowarce rate or marneting eoete iter te tote! Unt varsble set hae een deveined this amount is subtracted fom the seileg price carve at a sane marginal contiton par unt by prose ane package te. ‘steP4 VANILLA ICE CREAM Regular tite Premium tte item Pape:Contanet Piste Container Dairy Ingredients $53 $73 Suge 15 15 Flaver 10 12 Production 10 6 varanouse o8 Transportation 2 2s Total Manutactuing 96 1328 Advertsing 05 06 Delivery oe Total Marketing 40 Packagin z Total Variable 1975 Seting Price 249 Marginal Contuton par re 75 Step 28 pemape the mest ertea in making e promt plan, because a plane eve trem he antepted level of sales acy, Much (ought should be gen in forecasirg a realist sales fvel and proauct Imi. Coraieraton should be given fo the numberof days ma given period aswell sto the rum ' and Monday, ae thee are fhe of he heavlet ays an vil make a aiference in the see coer facto 1 General secnome consis ofthe marVANILLA ICE CREAM SALES FORECAST IN LITRES 100.000 1 He, Pope 1 ie, Piast 0,000, 2 tres, Paper 225,000 1 re, Premium 120.000 ‘tae 2 nvoives sexing nxed-cost buagets based on managements judge as 0 te need, In ight of the sales forecast shee that good planning makes fora profiable operation. The numberof routes needed fr both winter and summer volume is planned. The evel of manufacturing payrolls set. Because tne system ie bated or a cre-yoartime rame, menufacturrg labore concigered tobe @ fed cost The eval ef the manutactarng workforce Is nat real vials ntl a tne rare loge than one year is adoeted. Insurance and taxes are bucgeted, and eo on. After Step 4 ha been Performed it may be necessary fortum fo Step 3 and make adjustmerts io some of the cos that Manutactring Expense Labor $7,280 Depreciation .e5e Total Delivery Expenses Salaries - General s1o,o0 $70,000 Salaries - Driver 10.568 10652 Hope ross 10.882 Supplies 558 652 3.000 Total $32,004 $31,988 $384,000 Acminisratve Expense Salaries 35.163, $62,000 insurance 563 20,000 Toxes 1.663, 20.000 Depreciation 87 19,000 Total $9325 12.000 Seting Expense Repairs $2,667 $2663, $32,000 Gasaine 3.000 5000 5.000 5,000 312.087 si2663 Step 4 isthe prot plan ett By combining our meng Sais forecast rom Stop 2 we arnve at afta] margin 9 contribution developed in Step | wth ourcost budgeted in Step 3, we heve an operating proftby month i his proft gure naw evaluaten thould be mage for Stope 1,2 andor 2. ters THE PROFIT PLAN Standard Warginel —Januery Cconinbution wee s 1 He, Pope $340 00.000 $34,000 1 re, Plast 305 50.000 15250 2itees, Peper 265 225,000 59,625 1 ie, Premium 2s 000 ean Total Marginal Coninbuten $3957 495000 $195,875 Manutacturng Expense s2asi2 Delivery Expense 32.004 Administrative Expenee 9.6 Seling Expense 12887 “otal Fuss ST4617 $896,000 Operating rote sign2se 1.454.500 tccue eval sles acy forthe month be 52000 re as shown below Lacing beck et Bir snus trecat (ston 2) we staat t05 000 lee Pad bon orosacna, Vino op Sr ‘eign fren roach rand paceg wo tt 20 008 Pe osuces 6 125lcz sanded conovean un te 19800 hes vous Mave poeicd ane unfavorable. The $6,125 repr " ents the difference between standard proft contribution at forecas (lume and sanded pret carrbitan taal volume thus ue aerones Po Voume as Swances savage ra. Teta ef esc of ese ta eas Sour h BODE A Exuia Actual Staneare Total ite Contbuton Standard Sales rire Conrbuton 1 Ire, Pope 90.000 suo 1 ire, Plast 98,200 308 2 res, Paper 245,000 265 1 re, Premium 0.000 Total 520,000 Forecasted Stancerd Cortrbuton (at 495.000 tes) act ies 520.000 -25.000F Average Std, Contibuton $2649 $.03000 favorable: U, utavorebeue to Volume 25,000 tresF X $3957 = $9,582 Tota vanance = $6,1250 Valance Due to Mix '$.0808U x $20,000 ities = $16,017 Exniot 8 shows a typical ceparmental nucgetshest fore menin et January companng acu costs with budget. A sheet is ssund for each department, 20 he person responsi fora pariculer area of ‘he businage can aes tre tems tnat are nine and robe thal need stertion In ovr vamp. tere le fn unfavorable operating valance of $22.750($570,537-$583 267), You shoud nate thatthe Ducge {or veriabe cost tems hes been acjuslac fa eft acival volume, thereby eiminaling cost verances due att to he tterence Setvean lannes ana actual aume, Exuiprr e MANUFACTURING COST Actua Feeble Budget Feecle Budcet 312744 $228,000. Dalry ingredients 2.308 78.009 Suger 6.200 55.025. Flavorings 38,770 Warenoue 70.300 Produston ssrise2 Subtotal - Variable 7.300 Labor 4065 Equipment Repair m2 Tee s21.365 Sublola- Fixed $583, Tota Since tne lel of frou cost ndependent of voume anya ite rot necessary to adjust he budget for these items for volume dterences, The orginal budget fey fcec-cost fers ssh spproprate. The ‘cari fonard to an enrnings statement. Exhibit C. We have assured aren aa bugs ae in in, s0 he oly operating variance is he one fer manufacturing. This variance, acd 0 ts Salas Volume and mix valance of $6, 125U, results nan vera variance fom the orgie’ plan of $23 O76U, ee shown EARNINGS STATEMENT January ont Yearso-Date Actual Flaxbe Budget Actual Flexbe Budge 067750 $967,750 Total ce Creer Seles 287 $570,537 Manutacuring Costot Goose Sow 52808, 52808. Delivery ExpenseQi DLs {| 25% @ 4:06 PM 769 12667 208 752.617 s92383 115.198 Operating Profe Actual Praft before Taxes Ctiginal Proft Plan Revived Proft Pian, Based on Actual Volume Variance Due to Volume ane Mix (3:2) Variance Due to Operations (1-3) 92,38 258 (2) 33 (3) 33 = 127,268 92,383 - 116,138 121,288 - 92, 3