“The
Champions”
Consulting Firm
By
Simon Foucher
Kenny Somerville
Leo Pérez Saba
Shadi Mohamed
Geneviève Lavigueur
AGENDA
 Market
Overview
 Problem Definition
 Analysis of Variances
 Analysis of the Results
 Qualitative Analysis
 Recommendations
 Conclusion
MARKLEY DIVISION &
ITS MARKET
 Manufactures
and sells patio chairs:
 Metal
model
 Plastic model (lesser quality)
 Market
increased by 10% more than
forecasted
PROBLEM DEFINITION
 Ineffective
 Unable
 Not
budgeting & control system:
to understand causes of variances
able to implement pro-active
corrective measures
STATIC VARIANCES
Actual
Results
Static
Budget
Favorable
(Unfavorable)
$930
$875
$55 F
Total Variable Costs $735.8
$702.5
$(33.3) U
$155.8
$101.5
$(54.3) U
$71
$(32.6) U
(In thousands of dollars)
Total Sales
Total Other Costs
$38.4
Divisional
operational income
FLEXIBLE BUDGET
FLEXIBLE BUDGET
VARIANCES (L2)
(In thousands of
dollars)
Actual Flex Bud Flex
Volume Static
Results Variance Budget Variance Budget
Total Sales
$930
$30 F
$900
$25 F
$875
Total Var.
Costs
$735
$(16.8) U
$719
$(16.5) U
$702.5
Total Other
Costs
$155.8 $(54.3) U
$101.5
-
$101.5
Divisional
operational
income
$38.4
$79.5
$(41.1) U
$8.5 F
$71
FLEXIBLE BUDGET
VARIANCES (L2)
(In thousands of
dollars)
Divisional op.
income
Actual Flex Bud Flex
Volume Static
Results Variance Budget Variance Budget
$38.4
$(41.1) U
$79.5
$8.5 F
$71
FLEX BUDGET VARIANCE
SALES VOLUME
VARIANCE
$ (41.1) U
$ 8.5 F
STATIC BUDGET VARIANCE
$ (32.6) U
FLEXIBLE BUDGET
VARIANCES (L2)
(In thousands of
dollars)
Actual Flex Bud Flex
Volume Static
Results Variance Budget Variance Budget
Var. MFG Cost $49.6
Variance
 Who
$(49.6) U
-
-
is responsible?
 What
corrective measures can be applied?
-
MATERIALS PRICE (L3)
Qty Purchased x (Price – Budget)
60,000 x ($5.65 - $5.00) = $(39,000)
30,000 x ($6 - $6) = $0
MATERIALS EFFICIENCY (L3)
(Qty Used – Budget) x cost
(56,000 – 55,000) x $5 = $(5,000)
(23,000 – 22,500) x $6 = $(3,000)
DIRECT LABOUR PRICE (L3)
Hours used * (Price – Budget)
9,300 x ($6 - $6) = 0$
5,600 x ($8 - $8) = $0
DIRECT LABOUR
EFFICIENCY (L3)
(Hrs Used – Allowed) x Cost
(9,300 – 55,000/6 ) x $6 = $(800)
(5,600 – 22,500/4) x $8 = $200
VARIABLE OH SPENDING (L3)
(Tot.Var.OH/Budget DLH – Budget
Rate) x DLH Used
(43k+50k+19k)/9.3k = $12.04
($12.04 - $12) x 9300 = $(400)
(18k+15k+12k)/5.6k = $8.04
($8.04 - $8) x 5,600 = $(200)
VARIABLE OH
EFFICIENCY (L3)
(Hrs Used – Budgeted) x Rate
(9,300 - 55k/6) x $6 = $(1,600)
(5,600 – 22.5k/4) x $8 = $200
DL
EFFICIENCY
METAL
PLASTIC
SPENDING
METAL
PLASTIC
PRICE
METAL
PLASTIC
Total
DM
Var OH Total
200 (3,000)
200 (2,600)
(800) (5,000) (1,600) (7,400)
(200)
(400)
(200)
(400)
(39,000)
(39,000)
(600) (47,000) (2,000) (49,600)
CHANGES IN FINISHED GOODS INVENTORY
Material Manufactured Sold
Unit Cost
Change
PLASTIC $
55,000 $
60,000 $
8.00 $
(40,000)
METAL
$
22,500 $
20,000 $
10.00 $
25,000
Effect on Balance Sheet
CHANGES IN RAW MATERIALS INVENTORY
Material Required
Purchased
Cost
PLASTIC $
56,000 $
60,000 $
METAL
$
23,000 $
30,000 $
Change
5.65 $
22,600
6.00 $
42,000
ANALYSIS OF RESULTS
 CM
of metal is twice that of plastic.
 Majority
of the variances come from
flexible budget variance ($41,100 U)
 Mostly
cost of plastic: $39,000 U
 Efficiency
 Plastic:
($7,400U)
 Metal: ($2,600U)
ANALYSIS OF RESULTS
Fluctuations
in inventory due to:
Purchasing more materials than
required
Building inventories for Metal
Liquidating inventories for Plastic
These
the IS
fluctuations do not affect
QUALITATIVE ANALYSIS
 Major
causes of variances:
Purchase prices of raw materials
 Waste

 Intra
Q1 status report without details:
Management was not able to implement
corrective actions .
QUALITATIVE ANALYSIS
 Q1
average price of plastic (10.50$) might be
due to raising list price as corrective measure
 Sales
volumes were:
Higher for lower CM item (Plastic @14%)
 Lower for higher CM item (Metal @27%)

RECOMMENDATION
 Implement
a flexible budget and update it
monthly
 Change list prices:
Plastic +1$
 Metal -1$

 Adjust
the budgeted costs per unit
CONCLUSION
 PERCENT
% TABLE