1. “ The Champions ” Consulting Firm By Simon Foucher Kenny Somerville Leo Pérez Saba Shadi Mohamed Geneviève Lavigueur

2. AGENDA  Market Overview  Problem Definition  Analysis of Variances  Analysis of the Results  Qualitative Analysis  Recommendations  Conclusion

3.  Manufactures and sells patio chairs:  Metal model  Plastic model (lesser quality)  Market increased by 10% more than forecasted MARKLEY DIVISION & ITS MARKET

4.  Ineffective budgeting & control system:  Unable to understand causes of variances  Not able to implement pro-active corrective measures PROBLEM DEFINITION

5. (In thousands of dollars) Actual Results Static Budget Favorable (Unfavorable) Total Sales $930$875$55 F Total Variable Costs $735.8$702.5$(33.3) U Total Other Costs $155.8$101.5$(54.3) U Divisional operational income $38.4$71 $(32.6) U STATIC VARIANCES

6. FLEXIBLE BUDGET

7. (In thousands of dollars) Actual Results Flex Bud Variance Flex Budget Volume Variance Static 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 - Divisional operational income $38.4 $(41.1) U $79.5 $8.5 F $71 FLEXIBLE BUDGET VARIANCES (L2)

8. SALES VOLUME VARIANCE STATIC BUDGET VARIANCE (In thousands of dollars) Actual Results Flex Bud Variance Flex Budget Volume Variance Static Budget Divisional op. income $38.4 $(41.1) U $79.5 $8.5 F $71 FLEX BUDGET VARIANCE $ (41.1) U$ 8.5 F $ (32.6) U FLEXIBLE BUDGET VARIANCES (L2)

9. (In thousands of dollars) Actual Results Flex Bud Variance Flex Budget Volume Variance Static Budget Var. MFG Cost Variance $49.6 $(49.6) U - - - FLEXIBLE BUDGET VARIANCES (L2)  Who is responsible?  What corrective measures can be applied?

10. Qty Purchased x (Price – Budget) 60,000 x ($5.65 - $5.00) = $(39,000)30,000 x ($6 - $6) = $0 MATERIALS PRICE (L3)

11. (Qty Used – Budget) x cost (56,000 – 55,000) x $5 = $(5,000)(23,000 – 22,500) x $6 = $(3,000) MATERIALS EFFICIENCY (L3)

12. Hours used * (Price – Budget) 9,300 x ($6 - $6) = 0$5,600 x ($8 - $8) = $0 DIRECT LABOUR PRICE (L3)

13. (Hrs Used – Allowed) x Cost (9,300 – 55,000/6 ) x $6 = $(800)(5,600 – 22,500/4) x $8 = $200 DIRECT LABOUR EFFICIENCY (L3)

14. (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 SPENDING (L3)

15. (Hrs Used – Budgeted) x Rate (9,300 - 55k/6) x $6 = $(1,600)(5,600 – 22.5k/4) x $8 = $200 VARIABLE OH EFFICIENCY (L3)

16. DLDMVar OHTotal EFFICIENCY METAL200(3,000)200(2,600) PLASTIC(800)(5,000)(1,600)(7,400) SPENDING METAL(200) PLASTIC(400) PRICE METAL PLASTIC (39,000) Total(600)(47,000)(2,000)(49,600)

17. Effect on Balance Sheet

18.  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

19.  Fluctuations in inventory due to:  Purchasing more materials than required  Building inventories for Metal  Liquidating inventories for Plastic  These fluctuations do not affect the IS ANALYSIS OF RESULTS

20. 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.

21.  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%) QUALITATIVE ANALYSIS

22. RECOMMENDATION  Implement a flexible budget and update it monthly  Change list prices:  Plastic +1$  Metal -1$  Adjust the budgeted costs per unit

23. CONCLUSION  PERCENT % TABLE