Management Control Systems Final Written Case Assignment

Management Control Systems Final Written Case Assignment work outing and exercise Evaluation at the Berkshire Toy Company Prep ard for K ben M. Foust, Ph. D. , C. P. A. Adjunct Professor at Tulane University A. B. Freeman School of Business New Orleans, Louisiana Prepared by Andres A. Calderon andres. emailprotected com PO Box 21420 Baton Rouge, LA 70893 Date September 4, cc0 Background Janet McKinleys father, Franklin Berkshire, founded Berkshire Toy Company (BTC) in 1974.In 1988 Janet worked her room up to the position of coadjutor to the President after completing her MBA. Janet promoted employee participation and teamwork. The telephoner went public in 1991, and in 1993 Mr. Berkshire retired, leaving Janet as corpo step CEO. In 1995 quality Products Corporation, a friendship with a wide variety of products, acquired BTC for $23 million. Janet had an agreement that allowed her to continue to work for BTC for at least 5 years at an annual salary of $120,000.The company had a staff of 241 employees organized in three different segments purchasing (11 employees managed by David hallway), merchandise (175 employees managed by pecker Wilford), and merchandiseing (52 employees managed by Rita Smith)1. BTC produces a fifteen-inch, amply jointed, washable, stuffed teddy bear. The bear is packaged in a designer box and is accompanied by an unconditional lifetime guarantee, and a piece of chocolate candy. The bears are accessorized according to customer order specifications. Internet gross revenue began in 1997.Janet has just imbibed the June 30, 1998 income statement showing Operating Income at $1,632,317 below budget, epoch make out Revenue is at $1,440,487 above budget ( cipher gift 1). Janet is having trouble understanding how the companys revenue is thriving, but the company is non generating profits as expected. Current Situation BTC is a decentralized division of Quality Products Corporation that has been experiencing growth in gross sales over the past four years (see expose 2a). BTCs strategy is to have an enhanced product image, build customer brand loyalty through product differentiation, and produce an all American type product.BTC implemented a management compensation plan in 1997 the plan is structured as follows David at Purchasing 20% of net frameworks price segmentation, assumptive social Rita at market 10% of excess variance of net revenue, presume favorable 1 The remaining three employees are Janet, her secretary, and her secretarys assistant handbill at output 3% of net variance in material, labor, variable overhead, labor rate variance, and the variable and fixed overhead spending, assuming favorable variancesThe bear is hand made and the quality of material acquired by purchasing can negatively affect production generating excess waste or potentially jeopardizing the quality of the product. selling sells the bear through catalogs, companys retail store adjacent to the factory, Internet sal es, wholesale to department stores, toy boutiques, and other(a) specialty retailers. Most orders are shipped the same day as they are received. Commissions of 3% are paid on retail store sales and sales to wholesale buyers, no commissions are paid on catalog sales.Internet sales began in 1997 with bears being exchange at a wholesale price of $32. The Marketing and the Purchasing departments seem to be operating well, but the Production department manager has identified the following problems production was affected by materials ruined during flood, stinging material is substandard, amply rate of product stock-out, deviations from standard production plans, overtime to met sale demands is high, overworked staff, plant is at maximum capacity, and maintenance is almost impossible to be scheduled. Analysis of the Case Non-quantitativeBTC could work an alliance with its supplier in such a way that raw material is guaranteed to meet high levels of quality. Currently pinnacle in produ ction receives the raw material from David at purchasing, so inspections for defective material happen at the time of production and under the prescertain(p) of orders cumulus up awaiting production. David does not have any incentive to provide quality, but just to reduce his cost. Current incentive plan is not working to the gain of the Production department, it is not fair to have bonus linked to factors that cannot be controlled by the responsible manager.Incentives are structured in such a way that they encourage low balling revenue figures by the Marketing and high balling raw material price budgets by the Purchasing manager. A budget of zero sales to be achieved by the Internet deployment, supported by an expensive national radio campaign, is not accep accede and should not be rewarded. Quantitative Analysis The favorable sale revenue of $1,440,487 can be explained by a favorable tint of Internet sales2 (+307%), an negative effect of the retail and Catalog sales (-214%), a nd a negligible budget variance (+7%) explained by the Wholesale feats.Ninety one percent (equivalent to $2,300,980) of the unfavorable integral variable star Cost variance ($2,515,896) can be attributed to unfavorable variances in steer proletariat (39% or $980,305), Variable budget items (27% or $679,361), and Variable interchange outgo (25% or $641,314) (See Exhibit 4). Almost the undefiled unfavorable variance of fixed cost can be attributed to the unfavorable variance in Selling Expenses. The Direct Labor3 variance is mainly due to a variance of 42% (from 1. 2 budgeted to 1. 7 actual) labor hours per unit and a variance in salary rate from $8. 0 budgeted vs. $8. 17 actual. The Variable Overhead also affected by the unfavorable 1. 7 hours per unit of direct labor, contributed with an unfavorable amount of $181,639 (see Exhibit 6c). The Variable Overhead Cost per Hour went up due to the additional overhead. The Variable Selling Expense ca personad an unfavorable variance of $ 443,100 due to the added cost per unit (see Exhibit 6c). Average price per unit sold $44. 37 compared to a $46. 45 budget. The mix variance stemmed mostly from a price difference between Retail & Catalog ($49) and Internet ($42) sales.The 280,000 units are distributed between Retail & Catalog (85%) and Wholesale (15%) sales. Using the electro nonoperational figure Mix expected sales are of $15,122,083 (see Exhibit 5). strict Cost Selling Expenses caused an unfavorable variance of $560,192 to the budget, compared to a negligible favorable increase of $261 to budget due to the intractable Cost Administrative Expense. 4 Almost half ($225,627 favorable) of this unfavorable variance is counteracted by the higher than budgeted output and a fixed manufacturing overhead per unit of $ 1. 674 compared against the budgeted $1. 97. The overall unfavorable $114,910 Fixed Manufacturing Overhead is due to the variance in labor hours per unit. Due to 2 3 Or demote said a very unrealistic low ball budget of Internet sales I attribute this to the fact that the company works on an order received basis, instead of calling production. the incentive structure at BTC, David Hall has been buying cheap polyester filling and accessories, causing an unfavorable price efficiency variance of $49,609.Sales and Total Cost unfavorable variance of $ 2,669,607, compared to $1,632,317 budgeted can be attributed to scurvy sales mix performance (unfavorable Budgeted Sales air division $675,589) and unfavorable Labor Volume strain ($437,338)5. Incentive Program It is my opinion that the incentive program at BTC is the major contributor to the unfavorable variances. David Hall is rewarded for purchasing cheap raw material, which is affecting production. Rita is rewarded for selling products over the Internet at prices that are not appropriate.For a bonus allocation in dollars please refer to Exhibit 7, Incentive Plan (better named Lets all gang against poor old Bill). While David poc kets $9,636. 62 ($48,183 20%) by purchasing substandard polyester fillings for the bear, Bill looses $2K due to additional filler required for production of a quality bear. at that place is no reasoning on how Rita sets the price for the Internet bear. Rita set a low price on the bear causing an unfavorable mix variance and there is no reasoning on how she established the budgets overall she is favored by both moves, hurting the companys profits. overtimeThis is due to the inefficient use of labor, adding to the low morale of the employees. The unit labor requirement went from 1. 2 to 1. 7 due to the poor quality of raw material. The pay rate went up 17 cents due to new hires that had to be enticed to work at BTC. All these problems can be associated with the order base production scheduling, causing a knew jerk chemical reaction in the system every time a new order is received, forcing employees to work overtime (See Exhibit 8 for more details). The case makes it clear that the re have been no technology improvements in the past five years at BTC.Fixed manufacturing overhead is favorable due to the higher volume of items sold, but it does not reflect on the performance of the firm, since this is due to the low Internet price. I assume that most of this expense is to cover the radio campaign and the Internet cost, change magnitude volume with no concerns on the effect on Production 5 I blame this on Rita for selling products at less than reasonable price, solitary(prenominal) looking after her compensation. She increased volume with no concerns on the effect this might have on production. 4 RecommendationsProduction Bill should consider going to a forecasted production cycle, allowing a better distribution of the work load over the year (reducing overtime from 9. 11 to 8. 47), allowing time to mentor new employees (as attrition rate would be hire), allowing for scheduled maintenance without worrying about capacity during peak production times, and dedicat e more time to the cleaning of the machinery (there is a substantial bury in cleaning material cost, in this industry this can be associated with a higher maintenance expense, see Exhibit 2b).The quality management effort should be integrated to supports the overall strategy of maintaining a high quality product at BTC. The integration of marketing and production could yield better production schedules to be developed this integration can be accomplished by establishing shared goals between the two departments. With better production schedules BTC could identify bottlenecks and make sure that those are never starved for work6, reducing overtime demands during peak demand cycles.Overtime supports have been rising at an alarming rate (1619% in 1998, 1055% in 1997, see Exhibit 2b) this has very bad consequences on the companys bottom line7. Production planning should increasing employee morale, allow for proper maintenance of equipment and reduce the risk of infection of breakage du ring peak production times, and allow for planned training of new employees. In order to offer a higher quality product and impact the reduction of overtime, Bill has to consider upgrading some of the outdated equipment, especially replacing the equipment that reduces overtime and maintenance cost.The company is operating near to capacity new equipment should assuage the production bottlenecks and provide the foundation to reduce the overtime labor cost. If Bill is not familiar with new technologies in this industry, he should seek support from consultants in this area. Incentive Plan The incentive model should encourage accurate reporting by encouraging the right behavior, thus discouraging low or high balling while developing budgets (see Exhibit 3). David should be rewarded for finding the least expensive input material, without compromise of quality.Samples of material to be 6 Technology could also be deployed to reduce the bottlenecks, especially the labor-intensive bottleneck s. purchased should be analyzed by Production prior to committing to the shipment and purchase. This can only be accomplished if purchases are base on forecasted production, also allowing David to have more time for the negotiation of better prices for quality raw materials. Rita should continue to be rewarded for selling products, and growing markets. Instead of basing Ritas bonus on the Static budget, her bonus should be evaluated against the elastic Budget.In general static budgets are departmental goals that jointly represent corporate goals. Flexible Budgets curb some of the present variations in prices, markets, production, costs, etc. that tend to invalidate the Static Budget over time. The incentive plan for BTC should have a mix of departmental goals and division goals, so that there is a better integration among the different departmental goals. Bonuses should reflect managements favorable performance therefore, managers should have seemly control over those drivers t hat affect BTCs outcomes.BTC should design a equilibrise Score handbill as an integrative effort to support efforts of the individual managers of the different department in an orchestrated effort. Balanced Scorecard BTCs Balance Scorecards should be aligned to support the corporate strategy, both short and long term. Incentives should be designate to the degree the different measures contribute to the corporate goals. Managers shall respond to incentive, thus supporting corporate goals (see Exhibit 9 for details).A Balanced Scorecard typically includes measures in distributively of four areas Financial, Customer, Internal Business Processes, and Learning and Growth8. Some organizations add other dimension to support their strategy, or replace one of the four perspectives with one that unambiguously reflects their mission and strategy. In the case of BTC the identified areas are Corporate (BTC), Marketing, Purchasing, Production, and Management9. The proposed set of Balanced Sco recards for BTC is presented in Exhibit 10. It sounds like the previous manager was a occasion student of Dr.Page, since the two envelop strategy was employed. First envelope Blame the predecessor, write loss off. Second envelope Prepare two envelopes. This case is unwashed in business offices with companies that pay bonuses. Thats why companies are moving into options. 8 The Balanced Scorecard, Robert S. Kaplan and David P. Norton, Harvard Business School Press, 1996 9 Management as part of the Balanced Scorecards tends to be forgotten. Management (upper) has a responsibility to support the different departments with information on quality, cycle time, and cost. 7 Exhibit 1Berkshire Toy Company A ingredient of Quality Products Corporation Preliminary Statement of Divisional Operating Income for the Year Ended June 30, 1998 building blocks Sold Retail and Catalog Internet Wholesale Total Revenue Variable production costs Direct Material acrylic fiber pile fabric 10-mm acrylic eyes 45-mm plastic joints Polyester fiber filling interweave label fountain box Accessories Total Direct Material Direct Labor Variable Overhead Total Variable Production Cost Variable Selling Expense Contribution shore Fixed Costs Manufacturing Overhead Selling Expenses Admin Expenses Total fixed Costs Operating Income effective Units 325,556 $ 8,573,285 174,965 $ 4,428,018 105,429 $ 1,445,184 45,162 $ 14,446,487 Master (Static) Budget 280,000 $ 11,662,000 $ $ 1,344,000 $ 13,006,000 Master Budget fluctuation 45,556 $ (3,088,715) $ 4,428,018 $ 101,184 $ 1,440,487 admonitory Favorable Favorable Favorable $ $ $ $ $ $ $ $ $ $ $ $ $ 256,422 125,637 246,002 450,856 16,422 69,488 66,013 1,230,840 3,668,305 1,725,665 6,624,810 1,859,594 5,962,083 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 233,324 106,400 196,000 365,400 14,000 67,200 33,600 1,015,924 2,688,000 1,046,304 4,750,228 1,218,280 7,037,492 661,920 4,463,000 1,124,000 6,248,920 788,572 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3,098 19,2 37 50,002 85,456 2,422 2,288 32,413 214,916 980,305 679,361 1,874,582 641,314 (1,075,409) (3,023) 560,192 (261) 556,908 (1,632,317) Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Unfavorable Favorable Unfavorable Favorable Unfavorable $ 658,897 $ 5,023,192 $ 1,123,739 $ 6,805,828 $ (843,745) Unfavorable Exhibit 2a Company Growth based on Schedule of true Manufacturing Overhead Expenditures for years Ended June 30, 1994 1998 Units Produced 350,000 300,000 250,000 200,000 150,000 100,000 50,000 Units 1994 1995 1996 1997 1998 Year Exhibit 2b Variable Cost Associated with BTC growthBerkshire Toy Company A Division of Quality Products Corporation Schedule of Actual Manufacturing Overhead Expenditures for years Ended June 30, 1994 1998 1998 1997 1996 1995 1994 325,556 271,971 252,114 227,546 201,763 Units Produced Variable Overhead Payroll Taxes and fringes Overtime Premiums Cleaning Suppl ies Maintenance Labor Maintenance Suppliers Miscellaneous Total $ 840,963 $ 423,970 $ 4,993 $ 415,224 $ 27,373 $ 13,142 $ 1,725,665 $ 524,846 $ 24,665 $ 6,842 $ 256,883 $ 15,944 $ 11,244 $ 840,424 $ 467,967 $ 2,136 $ 6,119 $ 232,798 $ 12,851 $ 9,921 $ 731,792 $ 413,937 $ 1,874 $ 5,485 $ 244,037 $ 15,917 $ 8,906 $ 690,156 $ 356,150 $ 1,965 $ 4,996 $ 216,142 $ 14,323 $ 7,794 $ 601,370The following table shows the increases in variable cost associated with the production growth. Variable Overhead Growth Payroll Taxes and fringes Overtime Premiums Cleaning Supplies Maintenance Labor Maintenance Suppliers Miscellaneous Units Produced 1998 1997 1996 1995 60% 12% 13% 16% 1619% 1055% 14% -5% -27% 12% 12% 10% 62% 10% -5% 13% 72% 24% -19% 11% 17% 13% 11% 14% 20% 8% 11% 13% Increases in Variable Cost Associated with the Production Growth 1800% 1600% 1400% 1200% g-force% Percent 800% 600% 400% 200% 0% 1994 -200% 1995 1996 Year 1997 1998 1999 Payroll Taxes and fringes Maintenance Suppliers Over time Premiums Miscellaneous Cleaning Supplies Units Produced Maintenance LaborExhibit 2c Fixed Cost Associated with BTC growth Berkshire Toy Company A Division of Quality Products Corporation Schedule of Actual Manufacturing Overhead Expenditures for years Ended June 30, 1994 1998 Fixed Overhead Utilities Depreciationmachinery Depreciationbuilding Insurance retention Taxes supervisory salaries Total 1998 $ 121,417 $ 28,500 $ 88,750 $ 62,976 $ 70,101 $ 287,153 $ 658,897 1997 $ 119,786 $ 28,500 $ 88,750 $ 61,716 $ 70,101 $ 274,538 $ 643,391 1996 $ 117,243 $ 28,500 $ 88,750 $ 57,211 $ 68,243 $ 275,198 $ 635,145 1995 $ 116,554 $ 28,500 $ 88,750 $ 55,544 $ 68,243 $ 269,018 $ 626,609 1994 $ 113,229 $ 28,500 $ 88,750 $ 54,988 $ 66,114 $ 254,469 $ 606,050The following table shows the increases in fixed cost associated with the production growth. Fixed Overhead Growth Utilities Depreciationmachinery Depreciationbuilding Insurance Property Taxes supervisory salaries Units Produced 1998 1% 0 % 0% 2% 0% 5% 20% 1997 2% 0% 0% 8% 3% 0% 8% 1996 1% 0% 0% 3% 0% 2% 11% 1995 3% 0% 0% 1% 3% 6% 13% Increases in Fixed Cost Associated with the Production Growth 25% 20% 15% Percent 10% 5% 0% 1994 -5% 1995 1996 1997 1998 1999 Year Utilities Property Taxes Depreciationmachinery Supervisory salaries Depreciationbuilding Units Produced Insurance Exhibit 3 Incentive Model for Accurate Reporting10 ?b1* forecast + b2 * (actual forecast) if actual ? forecast Incentive = ? b1* forecast b3 * (forecast actual) if actual forecast b1 rewards are positively related to forecasted sales, give managers and incentive to forecast high b2 sales should be higher than the forecast, b2 affect this component b3 when actual sales are less than the forecast, this plan penalizes the manager For example b1 b2 b3 5% 3% 7% Actual Sales Forecasted Sales Incentive 1000 1000 50 1100 1000 53 1200 1000 56 1000 1100 48 1100 1100 55 1200 1100 58 1000 1200 46 1100 1200 53 1200 1200 60 10 Example from Managerial invo ice an Introduction to Concepts, Methods, and Uses by Maher Stickney & Weil. Exhibit 4 Total Variable Cost Variance Contributions Variance Cost Contribution acrylic pile fabric 1% 10-mm acrylic eyes 1% 45-mm plastic joints 2% Polyester fiber filling 3% Woven label 0% Designer box 0% Accessories 1% Direct Labor 39% Variable Overhead 27% Variable Selling Expense 25% Total Variable Cost Variance Contributions Acrylic pile fabric 45-mm plastic joints Woven label Accessories Variable Overhead 10-mm acrylic eyes Polyester fiber filling Designer box Direct Labor Variable Selling Expense Exhibit 5 Analysis of SalesFlexible Flexible Budget Budget (Budgeted Units Sales Volume Mix)(5) Variance $1,897,427 $$218,656 $2,116,083 $13,559,427 276723 $0 $1,562,656 48833 $15,122,083 325556. 1464 Actual Retail and Catalog Internet Wholesale Units scathe Master (Static) Budget $11,662,000 $$1,344,000 $13,006,000 Budgeted Budgeted Mix in Total Sales Sales Mix Mix PercentagesBudgeted value Variance Var iance 238000 0 42000 280000 85% 0% 15% 100% $49. 00 $42. 00 $32. 00 $46. 45 $(3,088,715) $(4,986,142) $4,428,018 $4,428,018 $ 101,184 $(117,472) $1,440,487 $(675,596) $8,573,285 174,965 $49. 00 $4,428,018 105,429 $42. 00 $1,445,184 45,162 $32. 00 $44. 37 Total Revenue $14,446,487 325556 Exhibit 6a Schedule of Standard Costs Fifteen-Inch Berkshire consent Table 2 Standard 280,000 UnitsQuantity Allowed per Unit Direct Material Acrylic pile fabric 10-mm acrylic eyes 45-mm plastic joints Polyester fiber filling Woven label Designer box Accessories Direct Material per unit Total Direct Material Direct Labor Sewing Stuffing and cutting conclave Dressing and Packaging Total direct labor 0. 02381 2 5 0. 9 1 1 Input Price $ $ $ $ $ $ 35. 00 0. 19 0. 14 1. 45 0. 05 0. 24 Standard Cost Per Unit $ $ $ $ $ $ $ $ $ 0. 83335 0. 38000 0. 70000 1. 30500 0. 05000 0. 24000 0. 12000 3. 62835 1,015,938 0. 50 0. 30 0. 30 0. 10 1. 20 $ 8 $ 9. 60 Variable manufacturing overhead 1. 2 $ 3. 114 $ 3. 7368 Fi xed manufacturing overhead 1. 2 $ 1. 970 $ 2. 3640 Exhibit 6b Schedule of Actual Manufacturing Costs for year Ended June 30, 1998 Table 3 Actual 325,556 UnitsQuantity Allowed per Unit Direct Material Acrylic pile fabric 10-mm acrylic eyes 45-mm plastic joints Polyester fiber filling Woven label Designer box Accessories Total Direct Material Direct Material per unit Direct Labor Sewing Stuffing and cutting Assembly Dressing and Packaging Total direct labor Overtime Premium Other Variable Manufacturing Overhead Fixed manufacturing overhead 7,910 661,248 1,937,023 344,165 328,447 315,854 Input Price $ $ $ $ $ $ 32. 4174 0. 1900 0. 1270 1. 3100 0. 0500 0. 2200 Total Cost $ 256,422 $ 125,637 $ 246,002 $ 450,856 $ 16,422 $ 69,488 $ 66,013 $ 1,230,840 $ 3. 780732 189,211 104,117 121,054 34,615 448,997 103,787 $ $ 8. 1700 4. 0850 $ 3,668,305 $ 423,970 $ 1,301,695 $ 658,897 $ 7,283,707 Exhibit 6c Analysis of CostStatic Budget Direct Material per unit Direct Material per unit Units Total Mate rials Labor Cost per Unit Total direct labor per unit Labor Hours Hourly Rate Total Labor Cost Variable Manufacturing Overhead Variable Overhead Cost per Hour Labor Hours Variable Manufacturing Overhead Variable Selling Expenses Cost per Unit Units Total Variable Selling Expenses Fixed Manufacturing Overhead Cost per hour of labor Total hours Fixed Manufacturing Overhead $ $ 1. 97000 336,000 661,920 $ $ 1. 46749 448,997 658,897 $ (225,627) $ (222,604) $ (448,231) Price Total $ $ 1. 97 390,667. 20 769,614. 38 $ 225,627 $ (114,910) Volume $ $ $ 4. 35100 280,000 1,218,280 $ $ 5. 71206 325,556 1,859,594 $ (443,100) $ (198,214) $ (641,314) Price Total $ 4. 35 325,556. 00 $ (443,100) $ Volume $ $ $ 3. 11 336,000 1,046,304 $ $ 3. 84 448,997 1,725,665 $ (327,488) $ (351,873) $ (679,361) Price Total $ 3. 11 390,667. 20 $ (327,488) $ (181,639) Volume $ $ $ $ 1. 20000 336,000. 00 8. 00000 2,688,000 $ $ 1. 6980 448,997. 00 8. 17000 4,092,275 $ (980,305) Total $ (76,329) $ (903,976) Price $ $ 1. 20 390,667. 0 8. 00 $ (76,329) $ (466,638) Volume $ $ $ 3. 62835 280,000. 00 1,015,938 $ $ 3. 78073 325,556. 00 1,230,840 (49,625) (165,291) $ (214,916) Price Total $ 3. 63 325,556. 00 $ (49,609) $ Volume $ Actual Variance Type Flexible Budget Price Efficiency Variance Volume Variance $ 1,181,231. 11 $ 3,125,337. 60 $ 1,216,537. 66 $ 1,416,494. 16 Flexible Budget Total Cost per Unit Total Cost Variance Price Variance Volume Variance (670,915. 33) (1,841,957. 90) $ 14. 26335 $ 16. 50162 $ 14. 26335 Flexible Budget Variance $ (1,434,086) Total Price Efficiency Variance $ (670,899. 27) Total Volume Variance $ (763,187. 10) Static Budget Variance $ (2,512,873. 3287) Fixed Costs Actual Static Variance Total Cost Variance Selling Expenses $ $ $ $ 5,023,192 4,463,000 (560,192) (3,072,804) Administrative Expenses $ $ $ 1,123,739 1,124,000 261 TOTAL Budget Cost Variance Budget Sales Variance Budget Variance Total Cost Variance Flexible $ (1,994,017) $ (675,589) $ (2,669,607) Static $ (3,072 ,804) $ 1,440,487 $ (1,632,317) $2,669,607 1,632,317 $1,037,290 Variances Volume Variance $ (903,976) $ (466,638) Labor Variance $ (437,338) Labors Hours Exhibit 7 Incentive Plan (better named Lets all gang against poor old Bill11) David Hall (Purchasing) Quantity Actual Price Static Budgeted Price Acrylic fabric 7910 $ 32. 42 $ 35. 00 10-mm acrylic eyes 661248 $ 0. 19 $ 0. 19 45-mm plastic joints 1937023 $ 0. 13 $ 0. 14 Polyester fiber filling 344165 $ 1. 31 $ 1. 5 Woven label 328447 $ 0. 05 $ 0. 05 Designer box 315854 $ 0. 22 $ 0. 24 Accessories 325556 $ 0. 20 $ 0. 12 Bonus $ 14,632. 71 20% Rita Smith (Marketing) Revenues Variable Selling Expenses Fixed Selling Expenses Net Revenues Bonus Actual Master Budget $14,446,487. 00 $13,006,000. 00 $ (1,859,594. 00) $ (1,218,280. 00) $ (5,023,192. 00) $ (4,463,000. 00) Delta $ 7,563,701. 00 $ 7,324,720. 00 $ 238,981. 00 10% $23,898. 1 Purchasing Variance $ 20,428. 37 $ $ 25,181. 30 $ 48,183. 10 $ $ 6,317. 08 $ (26,946. 28) $ 73,163. 57 Bi ll Wilford (Manufacturing) Price Variance Volume Variance Static Budget Variance $ (670,915. 33) $ (1,841,957. 90) $(2,512,873. 3) NO BONUS Since negative Static Budget Variance 11 Production processes input into output. Both, the input responsible manager and the output responsible manager, make good money $73K and $24K in 1998, while the production manager makes no money. This situation is ill-fated, or just plain dumb. The sandwich effect, the manager in the middles gets squeezed. This is the sarcasm in management that I am illustrating with this title. Exhibit 8 Overtime Hours 448,997. 00 Direct Overtime 103,787. 00 448,997. 00 Actual Pay Rate Total Hours $ 8. 17 $3,668,305. 49 390,667. 20 $ 4. 09 $ 423,969. 90 45,457. 20 $ 9. 11 $4,092,275. 39 390,667. 20 Flexible Pay Rate Total $ 8. 0 $3,125,337. 60 $ 4. 00 $ 181,828. 80 $ 8. 47 $3,307,166. 40 Exhibit 9 Balanced Scorecard12 The actions of management are not static but, rather, are dynamic over time. A round of Strategic perfor mance improvement (usually every year at the time budgets are being developed) whitethorn result in an increase in the goals that have been established by the manager and their Balance Scorecard supervisor. (see Figure 1) An analogy may be profitable at this point (see Figure 2) just as in high jumping, the goal (bar) is not set at the point at which it will in conclusion end. It is Performance Measure in set land, and as the jumping progresses, it is steadily moved higher.As the jumper Management trying to meet Performance clears it at lower heights, the bar is moved up. Each time the assessment (depicted by the black line in the graph) approaches or exceeds the goal (depicted by the gray line), the Figure 1. Balanced Scorecard in action 100 95 90 Performance Metric 85 80 75 70 65 60 55 50 2000 goal is increased until performance is at a level at which further improvements may not be desired. The management group of a corporation will develop plans for the year, those plans are revised through time, incentives are allocated and measures are taken to draw new plans for future years. The Balance Score card allows managers to keep their Goal core and their measures clear, so that decisions are made towards a goal that is congruent with the corporate goal. Outcome measures are results. Driving measures are sagaciousness incremental in nature, such as the ones depicted in Figure 2. 2004 Year 2005 2006 2007 2008 2001 2002 2003 Figure 2 Progressive Goal Setting 12 Graphs were extracted from lead Model based on Performance Measures and Continuous Improvement by Andres A. Calderon Exhibit 10 Balanced Scorecard for BTC Group BTC Scorecard Customer merriment Measures tally of Complaints and number of unsolicited letters Employee satisfaction (involvement, recognition, access to information, support from staff functions, etc. , Staff turnover, Productivity (revenue per employee, return on compensation, profit per employee, etc. ), add together of employees qualif ied for key jobs relative to anticipated requirement Outcome Performance Initiatives Driver BTC Employee Satisfaction Marketing Attain a high market share in the sale Percent of stuffed animal market share and cost to attain of quality stuffed animal toys a new customer check recognition by becoming the synonymous for Teddy Bears (brain Percent of people that relate teddy bear to TCB share) Reduction of selling expenses while increasing number of sales (Last Year Selling Expense Current Year Selling Expense) / (Last Year Sale Current Year Sale) Marketing Marketing Marketing Marketing MarketingIntroduction of successful new product Number of new motives or designs introduced per year, variations to the market Time to market, Break even time Introduction of better distribution channel Accurate product pricing based on market Market accessibility related to delivery cost Contribution Margin Growth and market understanding by polling customer perception of value for money Marketing A ccurate forecasting of sales and Percentage off faulting related to inventory cost, Percent of peak seasons (to minimize stock-outs key items out of stock, Number of back-orders and inventory cost) Group Scorecard Reduce cost of raw material while maintaining Production quality standards Minimize raw material shortages, so that Production does not have to wait Minimize production cycle timeMeasures Number of times Production rejected raw material, raw material cost compared to price index Percent of key raw material out of stock, Number of backorders Production cycle time Outcome Performance Initiatives Driver Purchasing Purchasing Production Production Production Minimal percentage of manufacturing Service stroke index, return rate, warranty claims, number defects of defects Timeliness Percent on-time delivery, total time for customer interaction (e. g. time of Internet session), average waiting time (e. g. to receive a teddy bear), satisfaction with delivery time Number of proce sses having adequate information on quality, cycle time, and cost New revenue or nest egg per database, report, etc. Management Information coverage ratio Management Return on Data