ANALYZE, THINK, COMMUNICATE ATC 8-1 Business Applications Case Static versus flexible budget variances John Richardson is the manufacturing production supervisor for Torsion Tool Works (TTW), a company that manufactures hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife, "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 250,000 units. Well, it sold only 240,000. The company lost money and gave me a bonus for not using as much materials and labor as was called for in the budget. This year, the company has the same 250,000 units goal and it sells 260,000. The company's making all kinds of money. You'd think I'd get this big fat bonus. Instead, management tells me I used more materials and labor than was budgeted. They said the company would have made a lot more money if I'd stayed within my budget. I guess I gotta wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked." TTW's master budget and the actual results for the most recent year of operating activity follow. Number of units Sales revenue Variable manufacturing costs Materials Labor Overhead Variable selling, general, and admin. costs Contribution margin Fixed costs Manufacturing overhead Selling, general, and admin. costs Net income Master Budget 250,000 $3,750,000 (600,000) (312,500) (337,500) (475,000) 2,025,000 (1,275,000) (470,000) $ 280,000 Actual Results 260,000 $3,950,000 (622,200) (321,000) (354,700) (501,300) 2,150,800 (1,273,100) (479,300) $ 398,400 Variances 10,000 $200,000 22,200 8,500 17,200 26,300 125,800 1,900 9,300 $118,400 For U F U כ כ כ F FUF
ANALYZE, THINK, COMMUNICATE ATC 8-1 Business Applications Case Static versus flexible budget variances John Richardson is the manufacturing production supervisor for Torsion Tool Works (TTW), a company that manufactures hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife, "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 250,000 units. Well, it sold only 240,000. The company lost money and gave me a bonus for not using as much materials and labor as was called for in the budget. This year, the company has the same 250,000 units goal and it sells 260,000. The company's making all kinds of money. You'd think I'd get this big fat bonus. Instead, management tells me I used more materials and labor than was budgeted. They said the company would have made a lot more money if I'd stayed within my budget. I guess I gotta wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked." TTW's master budget and the actual results for the most recent year of operating activity follow. Number of units Sales revenue Variable manufacturing costs Materials Labor Overhead Variable selling, general, and admin. costs Contribution margin Fixed costs Manufacturing overhead Selling, general, and admin. costs Net income Master Budget 250,000 $3,750,000 (600,000) (312,500) (337,500) (475,000) 2,025,000 (1,275,000) (470,000) $ 280,000 Actual Results 260,000 $3,950,000 (622,200) (321,000) (354,700) (501,300) 2,150,800 (1,273,100) (479,300) $ 398,400 Variances 10,000 $200,000 22,200 8,500 17,200 26,300 125,800 1,900 9,300 $118,400 For U F U כ כ כ F FUF
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Is Mr. Richardson correct in his conclusion that something is wrong with the company’s performance evaluation process?
Transcribed Image Text:ANALYZE, THINK, COMMUNICATE
ATC 8-1 Business Applications Case Static versus flexible budget variances
John Richardson is the manufacturing production supervisor for Torsion Tool Works (TTW), a company that manufactures
hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife,
"This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 250,000 units.
Well, it sold only 240,000. The company lost money and gave me a bonus for not using as much materials and labor as was
called for in the budget. This year, the company has the same 250,000 units goal and it sells 260,000. The company's
making all kinds of money. You'd think I'd get this big fat bonus. Instead, management tells me I used more materials and
labor than was budgeted. They said the company would have made a lot more money if I'd stayed within my budget. I guess
I gotta wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked."
TTW's master budget and the actual results for the most recent year of operating activity follow.
Number of units
Sales revenue
Variable manufacturing costs
Materials
Labor
Overhead
Variable selling, general, and admin. costs
Contribution margin
Fixed costs
Manufacturing overhead
Selling, general, and admin. costs
Net income
Master Budget
250,000
$3,750,000
(600,000)
(312,500)
(337,500)
(475,000)
2,025,000
(1,275,000)
(470,000)
$ 280,000
Actual Results
260,000
$3,950,000
(622,200)
(321,000)
(354,700)
(501,300)
2,150,800
(1,273,100)
(479,300)
$ 398,400
Variances
10,000
$200,000
22,200
8,500
17,200
26,300
125,800
1,900
9,300
$118,400
For U
F
כ
כ
כ
כ
F
FUF
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