Professor John Shank, The Amos Tuck School of Business Administration
This case is reprinted from Cases in Cost Management, Shank, J. K. 1996, South Western Publishing
Company. The case was prepared by Professor John Shank from an earlier version he wrote at
Harvard Business School with the assistance of William J. Rauwerdink, Research Assistant.
This case deals with the design and use of formal "profit planning and control" systems. It was originally set in an ice cream company in 1973, a few years before the advent of "designer ice cream".
Frank Roberts, Vice-president for Sales and Marketing of the Ice Cream Division of Boston …show more content…
In fact, actual sales for the year totaled over 5,968,000 litres, an increase of about 248,000 litres over budget. Market research data indicated that the total ice cream market in their marketing area was 12,180,000 litres for the year as opposed to the budgeted figure of about 11,440,000 litres
A revised profit plan for the year at the actual volume level is shown below.
The fixed costs in the revised profit plan are the same as in the original plan, $1,945,900. The variable costs, however, have been adjusted to reflect the actual volume level of 5,968,000 litres instead of the forecasted volume of 5,720,000 litres, thereby eliminating all cost variances due strictly to the difference between planned volume and actual volume
For costs which are highly volume dependent, variances should be based on a budget which reflects the volume of operations actually attained. Since the level of fixed costs is independent of volume anyway, it is not necessary to adjust the budget for