Questions:
1What is actual full cost per liter of ice cream for French region and Spanish region respectively?
2.a.Based on the actual data, calculate the break-even point in liters for the Spanis region
2.b.If Andres had increased his selling and advertising expenses to 850,000 Euros and the actual sales volume was 3,650,000 liters, what would have been the actual profit in the Spanish region?
3.Prepare a flexible budget for the Spanish region.
4.Conduct variance analysis and prepare a reconciliation statement between the original budget profit and actual profit for the Spanish region. Please analyse variances as detailed as possible.
5.What suggestions do you have for Andres and Jacques to improve the performance of the Spanish region? Consider using design-thinking principles to brainstorm ideas.
1.
|
Statement showing actual full cost per liter of ice cream |
||
|
Particulars |
France (000) |
Spain (000) |
|
Dairy Ingredients |
€ 9,142.00 |
€ 5,607.00 |
|
Other |
€ 3,186.00 |
€ 2,202.00 |
|
Labor |
€ 438.00 |
€ 238.00 |
|
Cost of Goods sold |
€ 12,766.00 |
€ 8,047.00 |
|
Supervision, energy etc |
€ 2,324.00 |
€ 2,166.00 |
|
Depreciation |
€ 467.00 |
€ 391.00 |
|
Outsourcing |
€ 2,126.00 |
|
|
Total cost of manufacturing |
€ 15,557.00 |
€ 12,730.00 |
|
Delivery expenses |
€ 908.00 |
€ 758.00 |
|
Depreciation of trucks |
€ 510.00 |
€ 424.00 |
|
Selling and advertising expenses |
€ 1,139.00 |
€ 786.00 |
|
Administrative salaries and expenses |
€ 810.00 |
€ 644.00 |
|
Allocated central office expenses |
€ 193.00 |
€ 193.00 |
|
Total Full cost |
€ 19,117.00 |
€ 15,535.00 |
|
Volume |
4618.00 |
3575 |
|
Total full Cost per liter of ice cream |
€ 4.14 |
€ 4.35 |
2.a
|
Calcuation of Break even point for Spain |
|
|
Particulars |
Amount |
|
Selling Price |
€ 4.42 |
|
Less: |
|
|
Variable Cost per liter |
€ 2.25 |
|
Contribution per liter |
€ 2.17 |
|
Fixed Costs |
€ 7,488.00 |
|
Break even point (liter) |
3452.14 |
|
Breakeven sales |
€ 15,258.45 |
2.b
|
Statement showing revised profit |
||
|
Particulars |
Amount (000) |
Amount (000) |
|
Sales Vloume (unit) |
3650 |
|
|
Selling Price |
€ 4.42 |
|
|
Sales |
€ 16,133.00 |
|
|
Less: |
||
|
Dairy Ingredients |
€ 5,724.63 |
|
|
Other |
€ 2,248.20 |
|
|
Labor |
€ 242.99 |
|
|
Total Cost of Goods sold |
€ 8,215.82 |
|
|
Contribution margin |
€ 7,917.18 |
|
|
Supervision, energy etc |
€ 2,166.00 |
|
|
Depreciation |
€ 391.00 |
|
|
Outsourcing |
€ 2,126.00 |
|
|
Total cost of manufacturing |
€ 4,683.00 |
|
|
Operating margin |
€ 3,234.18 |
|
|
Delivery expenses |
€ 758.00 |
|
|
Depreciation of trucks |
€ 424.00 |
|
|
Selling and advertising expenses |
€ 850.00 |
|
|
Administrative salaries and expenses |
€ 644.00 |
|
|
Allocated central office expenses |
€ 193.00 |
|
|
Total Selling and distribution cost |
€ 2,869.00 |
|
|
Profit Before Interest and Tax |
€ 365.18 |
3.
|
Particulars |
Actual Budget (000) |
Flexible Budget (000) |
|
Volume |
3685 |
3575 |
|
Sales revenue |
||
|
Sales ice cream |
€ 16,294.00 |
€ 15,507.00 |
|
Total Sales Revenue |
€ 16,294.00 |
€ 15,507.00 |
|
Less: Cost of Goods Sold |
||
|
Cost ice-cream |
||
|
Dairy ingredients |
€ 6,923.00 |
€ 6,716.34 |
|
Other ingredients |
€ 2,670.00 |
€ 2,590.30 |
|
Labor |
€ 279.00 |
€ 270.67 |
|
Contribution margin |
€ 6,422.00 |
€ 5,929.69 |
|
Less: Other Fixed Operating Costs |
||
|
Supervision, energy, maintenance |
€ 2,145.00 |
€ 2,145.00 |
|
Depreciation |
€ 391.00 |
€ 391.00 |
|
Outsourcing |
||
|
Operating margin |
€ 3,886.00 |
€ 3,393.69 |
|
Less: Fixed Selling and Administrative Expenses |
||
|
Delivery expenses |
€ 736.00 |
€ 736.00 |
|
Depreciation of trucks |
€ 413.00 |
€ 413.00 |
|
Selling and advertising expenses |
€ 827.00 |
€ 827.00 |
|
Administrative salaries and expenses |
€ 620.00 |
€ 620.00 |
|
Allocated central office expenses |
€ 158.00 |
€ 158.00 |
|
Profits before Interest and Taxes |
€ 1,132.00 |
€ 639.69 |
4.Analysis of Variance:
Variance analysis particularly in managerial accounting indicates towards examination of deviations specifically in financial performance from the given standards/benchmarks defined in corporation’s budget. The variance analysis is utilized as the variance between actual as well as flexed earning and expenditure (Wahlen et al. 2014).
The budgeted sales revenue for the Spanish region registered for the year 2016 is observed to be Euros 16294 while the actual sales revenue is recorded to be Euros 15507. The actual figure is lower than that of the budgeted figure. This reflects that that sales revenue derived from the sales of ice cream was over estimated.
The contribution margin reflecting the contribution for per unit is referred to as the selling price for every unit after deduction of the variable cost for every unit. Essentially, contribution indicates the overall portion of the overall revenue from sales of the firm that is not completely consumed by the firm’s variable cost and thus can contribute to towards coverage of the fixed costs (Wahlen et al. 2014). Again, the actual figure for contribution margin is registered to be Euro 7460 while the budgeted figure for the contribution margin was registered to be Euro 6422. Thus, this reflects that the actual figure for the contribution margin has exceeded the budgeted figure, thus representing the under estimation (Atrill et al. 2015).
As rightly indicated by Wahlen et al. (2014), operating margin refers to a margin ration that is utilized for the purpose of measurement of pricing strategy as well as operating efficiency. It defines the proportion of the revenue of the firm that is left over after making payments for variable production costs namely wages and raw materials and many others. In this case, the budgeted figure for operating margin was recorded to be Euro 3886 whilst the actual figure for the operating margin was registered to be Euro 2777. The difference or else the variance was calculated to be 1109, reflecting over estimation.
Furthermore, the budgeted figure for profits before interest and taxes was registered to be Euro 1132 while the actual figure for the same was presented to be Euro -28. Therefore, the difference between the actual and the budgeted figure was calculated to be Euro -1160. This shows over estimation of the profits of the firm.
5.Suggestions for Andres and Jacques for improvement of performance of Spanish region Considering utilization of design-thinking principle to brainstorm ideas
The processes of design thinking principle involve carrying out research, defining, ideating, prototyping and executing. In order to carry out research, it is important to generate meaningful innovations and understand the specific requirements of the customers. Thereafter, it is important to prepare questions for interview and undertaking synthesis (Williams 2014). The sessions of interviews with the employees and carrying out synthesis also assists in understanding that the sales revenue of the firm has declined owing to inadequate operational efficiency (Williams 2014). This can be referred to as the phase of research in the process of design thinking principle. Based on findings of the research, Andrea can introduce changes for improvement of the business operations in Spain. However, the actual figure of sales revenue for the French region was observed to be higher than that of the budgeted figure. Again, the management of the French region can develop business processes for augmenting the sales revenue of the firm further. The good performance of business in this region is mainly due to the effective operations of the newly introduced machines as well as implementation of innovative marketing procedures.
The following step involves defining needs or else opportunities and that is based on particularly what is learnt about the clientele of the customers as well as context (Weygandt et al. 2015). Analysis of the case using design thinking principle hereby includes illustrating the specific requirements. In this case, the current need is to increase the overall revenue of the business in Spain and the profit after tax also has the need to surpass the budgeted figure. However, the current need of the business in the French region is to further increase the revenue figure of the firm and to further augment the overall profit figure (Wahlen et al. 2014). Therefore, management responsible for the business operations in the French region might take into consideration maintenance of operational excellence. Analysis of business in France reveals that traditional regions of the French market were really disappointing. Therefore, there was need for increasing the market share that was observed to slip from particularly 20% to 18%.
The subsequent steps include ideating, that is necessarily not about generating the correct idea and is about development of widest range of possibilities. Again, the process of ideating also includes development of correct as well as innovative idea for correcting the business condition in the area of Spain (Nobles et al. 2013). Based on the research findings, Andreas can work towards development of the sales revenue of the business from the Spanish zone by augmenting sales of the ice cream of the corporation. In essence, management of the firm operating in Spain can monitor the level of efficiency of the vending machines in order to increase the performance of the same and avert the problems of adjusting the machines and running out of the potential. In addition to this, Andreas can also take into consideration introduction of certain novel products and the manager can also follow certain innovative marketing ideas in the region of Spain. However, analysis of the business operation in French region helps in ideating and working towards improvement of operations. Jacque can support the initiative of Jean and recognize the fact that the business had potential in the distribution segment.
Essentially, this also involves undertaking brainstorming that contains mind maps, screens, words and communicative (Christensen et al. 2013). In addition to this, design thinking principle involves prototyping that includes building the process of thinking as well as answering specific questions that helps one to get closer to the ultimate solution. Andrea can develop a team of specialists for consulting the business problems and seeking solutions. Again, consultants/experts and people in management can develop a process of thinking for addressing the issues encountered in the region of Spain, factors leading to the problems and arriving at solutions for resolving the issues. The management along with specialists might probably intend to address the issues of operative mal functionalities of the vending machines that were introduced for development of the business conditions in the region of Spain. Again, the management might probably consider regular maintenance of the machines by the technicians. However, in case of the business operations in French, Jacque can consider development of simple ways of developing revenues as was designed by Jean for refrigerating and delivering products.
Finally this principle includes the procedure of execution that essentially involves picking as well as selecting the specific idea that can help in striking the right balance between the needs or else requirements of specific users and the goals of corporation and thereafter implementing the same. The management might work towards alignment of the needs of the corporation and the requisite modifications in the operations for the betterment of the conditions (Bodie 2013). Again, the management of business operations in France might take into consideration the innovative processes of implementing the exclusive ideas of augmenting distribution and thereby revenue of the firm.
References
Atrill, P, McLaney, E and Harvey D 2015, Accounting: An Introduction, 6th edn, Pearson Education, Melbourne, Vic
Bodie, Z., 2013. Investments. McGraw-Hill.
Christensen, T., Cottrell, D. and Baker, R., 2013. Advanced Financial Accounting. McGraw-Hill.
Nobles, T.L., Mattison, B.L. and Matsumura, E.M., 2013. Horngren’s Financial & Managerial Accounting: Pearson New International Edition. Pearson Higher Ed.
Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John Wiley & Sons.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.
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