Blue Steele Toy Company Harvard Case Solution & Analysis

VARIANCE ANALYSIS OF MASTER BUDGET:

In Table 1, a static and actual master budget has been prepared as well as master budget variance has also been prepared. The master budget depicts a positive amount $45556 as a variance for units sold, this shows the efficiency of the management of the company that the management of the company is able to sell more units than it actually estimated. Moreover, a negative variance in the sales of the retail and catalog units shows that the management of the company is unable to sell the budgeted units of this product line. However, the overall revenue variance shows a favorable variance, which depicts the increase in overall revenue of the company as compared to the estimated amount of revenue.

Furthermore, the total direct material variance of the company shows an unfavorable variance amounting to $214,916; this depicts either increase in the raw material prices than estimated or the increase in consumption of raw material than actually estimated by the management of the company.

Moreover, the direct labor variance also shows an unfavorable variance amounting to $980,305. This depicts that the company is unable to hire labor at a rate that they actually estimated, this also shows that the labor hours are consumed more than the management had estimated.

The total variable overheads variance of the company is unfavorable amounting to $2,515,896. This illustrates that the company is unable to control its variable costs as efficiently as it had expected to control. This had caused a drastic increase in the variable expenses of the company which further decreased the overall profitability of the company.

The operating income variance of the company represents that the management is unable to achieve the desired profit. The unfavorable material, labor, variable overhead and fixed overhead variances caused the company to incur loss instead of earning profit as estimated by the management.

COMPARISON OF MASTER BUDGET WITH STATIC BUDGET

In exhibit 1, a flexible budget is prepared on the basis of the actual amount of units sold. All the values of direct material, labor, and variable overheads are calculated using the standard rates and then projecting them to the actual units. Upon comparing the flexible budget with the static budget, sales volume variance has been calculated in Exhibit 2. The units sold variance is favorable showing that the company has sold more units than it actually budgeted to sell. Moreover, the overall revenue variance shows a favorable variance showing that company has made more revenue than it actually estimated.

Furthermore, the direct material variance, direct labor variance and the variable overhead variance showed a negative amount. This represents the inefficiency of the management in controlling its costs related to direct materials, direct labor and variable overheads of the company. This has increased the overall costs of the company, which has subsequently decreased the overall profitability of the company.

COMPARISON OF MASTER BUDGET WITH ACTUAL RESULTS

In exhibit 2, flexible budget has been compared with the actual results of the company. The variances show that the company has performed efficiently in selling the quantity of its products but has lacked in making its operations cost effective. Moreover, it also shows that the company is consuming more raw material and labor hours in its operations and manufacturing process than the management had actually estimated. This trend has been depicted in the variance analysis calculated by comparing the flexible budget with the actual results. The variances show a positive favorable variance of the overall revenue of the company, whereas, it shows unfavorable variances of direct materials, direct labor and variable overheads of the company.

SUB DIVISION OF VARIANCES

The variances calculated by comparing the actual results with the flexible budgets are subdivided into direct material variances, direct labor variances, and variable overhead variances in exhibits 4, 5, and 6 respectively. The direct material variances have been broken down into direct material usage variance and direct material price variance in order to analyze closely the reason for variance. Furthermore, the direct labor and variable overhead variances have also been broken down into rate and efficiency variances.Blue Steele Toy Company Case Solution

ANSWER TO QUESTION # 1b

The bonuses had been calculated in the Exhibit7, which depicts that the Brint Prewitt, manager purchasing department, would receive the bonus amounting to $14,632, as well as, Katinka Hansel, manager marketing department will receive bonus amounting to $23,898. On the other hand, the manager of production is not qualified for the bonus plan as the net variances form various departments showed an unfavorable amount of various...........................

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