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    Midwest Ice Cream Company

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    Arijit Das
    Frank Roberts, the vice president of marketing at Midwest Ice Cream Company, was pleased to see the company post a profit of $723,600 for 1973, exceeding expectations. The company installed a new budgeting system in 1972 that allowed it to compare actual results to budgets. When asked to present to the board of directors, Roberts analyzed variances between the budget and actual results. The favorable sales volume variance of $117,700 was largely due to higher than anticipated sales, though price increases also contributed $12,000 favorably. Various unfavorable variances in manufacturing and other expenses resulted in a net favorable variance of $71,700.

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    Midwest Ice Cream Company

    Uploaded by

    Arijit Das
    480 views13 pages
    Frank Roberts, the vice president of marketing at Midwest Ice Cream Company, was pleased to see the company post a profit of $723,600 for 1973, exceeding expectations. The company installed a new budgeting system in 1972 that allowed it to compare actual results to budgets. When asked to present to the board of directors, Roberts analyzed variances between the budget and actual results. The favorable sales volume variance of $117,700 was largely due to higher than anticipated sales, though price increases also contributed $12,000 favorably. Various unfavorable variances in manufacturing and other expenses resulted in a net favorable variance of $71,700.

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    Frank Roberts, the vice president of marketing at Midwest Ice Cream Company, was pleased to see the company post a profit of $723,600 for 1973, exceeding expectations. The company installed a new budgeting system in 1972 that allowed it to compare actual results to budgets. When asked to present to the board of directors, Roberts analyzed variances between the budget and actual results. The favorable sales volume variance of $117,700 was largely due to higher than anticipated sales, though price increases also contributed $12,000 favorably. Various unfavorable variances in manufacturing and other expenses resulted in a net favorable variance of $71,700.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    480 views13 pages

    Midwest Ice Cream Company

    Uploaded by

    Arijit Das
    Frank Roberts, the vice president of marketing at Midwest Ice Cream Company, was pleased to see the company post a profit of $723,600 for 1973, exceeding expectations. The company installed a new budgeting system in 1972 that allowed it to compare actual results to budgets. When asked to present to the board of directors, Roberts analyzed variances between the budget and actual results. The favorable sales volume variance of $117,700 was largely due to higher than anticipated sales, though price increases also contributed $12,000 favorably. Various unfavorable variances in manufacturing and other expenses resulted in a net favorable variance of $71,700.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    MIDWEST ICE CREAM COMPANY

    GROUP B-7
    VAIBHAV KHANDELWAL

    ANSHU JAIN

    PRACHI GUPTA

    SOURABH SANJAY JADHAV

    SHIVKUMAR SETHURAMAN

    SOUPARNO ADAK
    INTRODUCTION
    • FRANK ROBERT, MARKETING VICE-PRESIDENT OF MIDWEST ICE CREAM
    COMPANY, WAS PLEASED TO THE FINAL EARNING STATEMENT OF THE
    COMPANY FOR 1973, WHICH POSTED A PROFIT OF $723600 WHICH IS
    MORE THAN EXPECTED RESULT.
    FROM WHERE ALL THE PROBLEMS ARE
    STARTED

    IN 1972, THE COMPANY INSTALLED A NEW FINANCIAL PLANNING AND


    CONTROL SYSTEM. THIS WAS A FIRST YEAR THAT FIGURES COMPARING
    BUDGETED AN ACTUAL RESULTS WERE AVAILABLE. JIM PETERSON,
    PRESIDENT OF MIDWEST ASKED ROBERT TO MAKE A SHORT
    PRESENTATION AT THE NEXT BOARD OF DIRECTOR MEETING
    COMMENTING ON FAVORABLE VARIANCE OF $71700.
    PROBLEM STATEMENT

    THE MIDWEST ICE CREAM COMPANY IS DOING MANY THINGS “WRONG”,


    AND MISTAKES THEY ARE MAKING ARE BEING COVERED BY A POORLY
    PLANNED BUDGET.
    REVIEW THE SALES VOLUME VARIANCES
    WHILE CREATING A PROFIT PLAN FOR 1973, MIDWEST ANTICIPATED THAT THE OVERALL GALLON SALES WOULD STAY AT THE SAME AS THAT OF
    1972. THE SAME APPROACH WAS FOLLOWED FOR VARIABLE PRODUCT COSTS AND FIXED COSTS. HOWEVER, IN 1973, THE ACTUAL SALES WERE
    HIGHER THAN THOSE ANTICIPATED. A SUMMARY OF THE BUDGETED VERSUS REVISED SALES AND COSTS IS SHOWN BELOW:

    Budgeted/Anticipated Revised
    Market Size 11440000 12180000
    Sales Volume 5720329 5968366
    Market Share 50% 49%
    Sales Revenue 9219900 9645300
    Fixed Costs 1945900 1945900
    Variable Costs 6628600 6936300
    Contribution Margin 2591300 2709000
    Income from Operations 645400 763100

    Variance due to Sales Volume = 117700


    ANALYSIS OF PROFIT VARIANCE BY
    FRANK ROBERTS
    Favourable Variance Due to sales
    Volume 1,17,700 F
    Price 12,000F 1,29,700 F
    Unfavourable Variance due to Operations

    Manufacturing 99,000 U
    Delivery 54,000 F

    Advertising 29,000 U
    Selling 6,000 F

    Administration 10,000 F 58,000 U

    Net variance 71,700 F


    Total budgeted contribution
    Products Budgeted Profit($) Forcasted Volume Forecasted margin
    Vanilla 0.4329 2409854 1043225

    Chocolate 0.4535 2009061 911109

    Walnut 0.5713 48883 27926

    Buttercrunch 0.4771 262185 125088

    Cherry Swirl 0.5153 204774 105520

    Strawberry 0.4683 628560 294354

    Pecan Chip 0.5359 157012 84142

    Total 0.4530 5720329 2591300


    • THE VOLUME VARIANCE OF $117700 F ALONE CAN BE MISLEADING.
    • BREAKING IT DOWN FURTHER WE CAN SEE THAT VARIANCE DUE TO VOLUME
    IS $112347 AND VARIANCE DUE TO SALES MIX IS $5339. BOTH FAVORABLE.
    • Total manufacturing variance $99000 (unfavorable).
    • Further can be broken down into Variable and fixed cost variance as shown above.
    • Further variable cost variance ($59100 U) can be further broken down into $80700 U
    and $21600 F (6172200-80700-6113100).
    • The Price increase is most likely due to an unforeseen environmental change which
    Midwest probably has little control over.
    OPERATING VARIANCE

    • This operating variance is unfavorable due to increase in sales.


    • The operation variance is $46000 U not $58000 U. This is
    because of the $12000 F variance in the sales price.
    ANALYSIS
    RECOMMENDATION

    • MAXIMIZE THEIR FLEXIBLE BUDGET CAPABILITIES.


    • FREQUENCY OF VARIANCE CHECKS INCREASED AND
    SUITABLE CHANGES SHOULD BE MADE.
    • GIVES TIME TO TAKE CORRECTIVE MEASURES IF THE
    SITUATIONS TURNED OUT UNFAVORABLE.
    Thank You

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