Variance Analysis - Compagnie
Profit Plan (Master Budget) Profit before Interest and Taxes = 1027
Flexible Budget Profit before Interest and Taxes = 2,002
But Actual Profit earned = 1242 which is 760 less than profit anticipated in flexible budget.
Increase in the profits above the actual budget can be attributed to 20% increase in sales in 2009. Although Jean’s profits were above the actual budget, French Division’s earnings were much lower than what it could have been, had they budgeted for the actual volume of sales that they ended up selling. We can partly attribute this decrease in earnings to the fact …show more content…
Looking at the Sales figures and at the detailed variance analysis, we conclude that the Italian manager had very well attained his sales goals and had evidently expanded the distribution of the company’s products into most of the western Italian coast despite facing higher wages and lower efficiency in the manufacturing of Ice Cream.
2. Try to break out the strategic profitability variances for (at least) one of the businesses.
The Italian division is probably the most straight-forward of the three. Please do a full variance analysis for this division.
Detailed Variance Analysis – Italian Division
Please Refer Exhibit A
We have prepared a flexible budget from the given data to do our variance analysis. Units ('000)
Step 1 Step 2 Step 3 and Step 4 Step 5 Step 6
Sales volume in 2008 = 2433
Projected Sales Volume in 2009 = 2433 * (1.12) = 2725 at a predicted temperature of 29.7 degree Celsius
Actual and hence flexible Budge Sales Volume: 2756 at actual temperature of 29.8 degree Celsius
Variance = 2756 – 2725 = 31 Favorable
Jacques had developed over time a rule of thumb that a 1°C deviation from the mean summer temperature resulted in a 3% change in volume growth. For 2009, the deviation from the mean recorded was 0.1 degree Celsius.
Therefore anticipated sales volume would be 2433 * (1.123) = 2732
Unanticipated volume due to weather = 2732 – 2725 = 7
Sales Activity Variance