Boston Creamery Inc

Variance Analysis
Group 5
08FT-108 Srikanth Hanumanula
08FT-109 Srinivasa Sarat Chandra K.
08FT-134 Arup Guha
08FT-141 Satish Kiran Borra
08FT-162 Pradeep Hari
08FT-182 Abhinav Chaudhary
 Issues
•The Case describes a conflict within Boston Creamery’s management
team, which is based upon their disagreement over the variance analysis.
They need to learn the major reasons for the favorable operating income
variance of $71,700. They also need to develop tools for budgeting that
will be more accurate with regard to sales forecasts, as well as costs and
prices for the ice cream products that are marketed by Boston Creamery.

•The favorable variance of operating income was due to the larger size of
the overall market, plus the higher prices charged for the product,
compared to the forecast. It was not due to increased market share.
• Even though revenues were more as compared to flexible
budget, operating income went down due to rise in costs.

• Unfavorable Manufacturing Variance

• Need to look at the profit contribution of each flavor, package

and size of ice cream that they produce and sell.

• Need to find better ways to forecast sales and operating costs.

• Engineered Costs vs. Discretionary Costs.

• Should calculate the variance very month and make decisions

accordingly.
Exhibit 3
Analysis of Variance from Forecasted Operating Income

Information given:

Month Year to Date

(1) Actual Income from Operation $ 717,100
(2) Budgeted Income @Forecasted Volume(Original Plan) $ 645,400
(3) Budgeted Income @Actual Volume(Revised Plan) $ 763,100

Variance Due to Sales volume and Mix [(3) minus (2)] $ 117,700 F
Variance Due to Operations [(1) minus (3)] $ 46,000 U
Total Variance [(1) minus (2)] $ 71,700 F
What changes did we make to the schedule?

Actual Income Revised/flexible Original

from Operation Plan Budgeted Plan
$717,100 $763,100 $645,400

Price Quantity Variance

Variance

$46,000 U $117,700 F

Total Variance
$71,700 F
John Parker is the VP for Manufacturing and Operations.
He might feel that it is Marketing’s responsibility to set prices so
as to recover all commodity cost increases.
How might John Parker structure the variance analysis report?
Manufacturing COGS
Actual Flex. Budget
Variable Costs
Dairy Ingredients $ 3,679,900 $ 3,648,500
John is
Milk Price Variance $ 57,300 worried
Sugar $ 599,900 $ 596,800 $80700 about this.
Sugar Price Variance $ 23,400 What might
Flavoring $ 946,800 $ 982,100 be the
Cartons $ 567,200 $ 566,900 probable
Plastic Wrap $ 28,700 $ 29,800 Solution?
Additives $ 235,000 $ 251,000
Supplies $ 31,000 $ 35,000
Misc. $ 3,000 $ 3,000
Subtotal $ 6,172,200 $ 6,113,100
Total Fix Costs $ 652,700 $ 612,800
Total $ 6,824,900 $ 6,725,900
•Reduce from Manufacturing and Add to Advertising (Marketing)

Exhibit 1
$6,824,900
Earnings Statement Actual Flexible Budget _ 80,700

Sales- Net $ 9,657,300 $ 9,645,300 6,744,200

_ 6,725,900
Manufacturing Cost $ 6,824,900 $ 6,725,900
($18,300) U
Delivery $ 706,800 $ 760,800
$607,700
Advertising $ 607,700 $ 578,700
+ 80,700
Selling $ 362,800 $ 368,800
688,400
Administrative $ 438,000 $ 448,000 _578,700
Total Expense $ 8,940,200 $ 8,882,200
($109,700)U
Operations Income $ 717,100 $ 763,100
 Frank Robert’s Schedule (Revised)

Favorable Variance Due to Sales:

Volume $ 117,700 F
Price $ 12,000 F $ 129,700 F
Unfavorable Variance Due to Operations:
Manufacturing $ 99,000 U $18,300U
Delivery $ 54,000 F
Advertising $ 29,000 U $109,700U
Selling $ 6,000 F
Administration $ 10,000 F $ 58,000 U
Net Variance - Favorable $ 71,700 F
 Weaknesses
• No Short term budget
• No budget for variable cost control per
department
• Management doesn’t take full responsibility of
controlling variable cost