Midwest Ice Cream Essay, Research Paper

Executive Summary

It is recommended that Jim Peterson use the undermentioned lineation for the presentation to the board of managers at Midwest Ice Cream Company.

Outline for Presentation

? Introduction

? Identify the job

? Analyse Figure 1 and Illustrations 1 & # 8211 ; 3

? Commend the countries that did good

? Discuss the disciplinary actions to see

? Make recommendations

? Conclude the presentation

The undermentioned instance survey provides Jim Peterson with all the necessary information to do a non-technical presentation to the board of managers.

Introduction

Budgeting is a critical component of the direction planning and control procedure. Budgeting is the procedure that translates corporate purposes into specific undertakings, and identifies the resources needed by each director to transport them out. In the procedure, budgeting enhances communicating and co-ordination of different administrative units, facilitates decision-making, and provides a model for monitoring and for public presentation rating.

All directors are responsible for fixing a budget. Since specific sections play of import functions in bettering assorted constituents of the balance sheet and the income statement, it is critical that they prepare their budgets in a responsible manner.

Once budgets are in topographic point it is necessary to analyze the difference between the existent and budgeted costs ( discrepancy ) . A discrepancy analysis involves the decomposition of the discrepancy into the single factors that caused the discrepancy. Directors need to be able to understand how to interrupt down and analysis the discrepancies ; this helps them find the proper disciplinary action.

Problem

The Midwest Ice Cream Company is making many things incorrect, and the errors they are doing are being covered up by a ailing planned budget.

Analysis

The overall discrepancy at Midwest Ice Cream is $ 71,700F. This is considered a good discrepancy because it means they made more money than their original budgeted figure. However, the dislocation of this discrepancy shows rather a different image, it seems that Midwest under-budgeted their gross revenues forecast by 248,037 gallons of ice pick or $ 117,700F. This figure was somewhat offset by the $ ( 58,000 ) U runing discrepancy which brings the entire figure to $ 71,700F.

When looking at discrepancies it is possible to interrupt them down into their specific countries. In the analysis of the Midwest Ice Cream Company the discrepancies can be broken into three wide countries Gross saless, Operationss and Gross saless Price/Operations. The undermentioned discrepancy analysis lets directors understand why the discrepancies occurred.

Gross saless & # 8211 ; Refer to Appendix A

The overall gross revenues discrepancy is $ 117,700 this figure on its ain can be misdirecting that is why it is necessary to interrupt it down into the specific countries. The gross revenues discrepancy can be dissected into three countries: industry volume, market portion and gross revenues mix.

Industry Volume $ 167,619F

Market Share $ ( 55,259 ) Uracil

Gross saless Mix $ 5,339F

Entire $ 117,700F

Now that the specific discrepancies have been identified it is easy to understand what disciplinary action demands to be taken. For illustration the market portion is $ ( 55,259 ) Uracil, this means that the overall market portion dropped from 50 % to 49 % .

Operation Expenses & # 8211 ; Refer to Appendix D

The operation consists of disbursals such as fabrication, bringing, advertisement, merchandising and administrative. The greatest discrepancy within operations is the unfavorable fabrication disbursal of $ ( 99,000 ) Uracil. This fabricating discrepancy can be broken into fixed and variable costs.

Variable Cost Variance $ ( 59,100 )

Fixed Cost Variance $ ( 39,900 )

Entire $ ( 99,000 )

The $ ( 59,000 ) can be broken down into $ ( 80,700 ) Uracil due to monetary value addition and $ 21,600F due favorable usage discrepancy. The $ ( 80,700 ) U monetary value addition is most likely due to an unanticipated environmental alteration which Midwest likely has small control over. The elaborate fabrication discrepancy analysis allows direction the chance to do the proper disciplinary actions for 1974 & # 8217 ; s budget.

Operating & # 8211 ; Refer to Appendix C

The operating discrepancy can be found by deducting the flexible budget income from the existent income. In the instance of Midwest the operating discrepancy is $ ( 46,000 ) U, T

his unfavorable discrepancy is chiefly due to a lessening in gross revenues. The operating discrepancy can be broken down into Gross Margin and Fixed Costs.

Gross Margin $ ( 22,100 )

Fixed Costs $ ( 23,900 )

Entire $ ( 46,000 )

This operating discrepancy is added to the income discrepancy to give a concluding discrepancy of $ 71,700F. The ground why the operating discrepancy is $ ( 46,000 ) U and non $ ( 58,000 ) Uracil is because there was a $ 12,000F discrepancy in the Gross saless Price. This $ 12,000F is because there were more high border spirits sold in 1973.

Marketing Mix & # 8211 ; Refer to Appendix B

The mix construct gives you a dislocation of gross revenues by merchandise and enables you to see the influence each merchandise has on the gross border. This is a really of import country of the concern because it allows a director to find which merchandises are stars and Canis familiariss. A good director will invariably alter the mix to back up the merchandises that best help the gross border. In the instance of Midwest the merchandise mix discrepancy shows at that place has been a big lessening in the gross revenues of vanilla and cocoa and an addition in the sale of strawberry and red whirl. The break down of the market mix discrepancies show the directors at Midwest what spirit are popular and what spirits are non selling good. Midwest might desire to see promoting their sales representative to force the high border spirits ( Pecan Chip and Walnut ) , this would be an effectual manner to maximize the net incomes.

What countries deserve citation for 1973 public presentation?

? Within Manufacturing & # 8211 ; Flavouring, Additives and Other disbursals were all below budget

? The Delivery, Selling and Administrative disbursals were under-budget

? Management has established a good four measure budgeting procedure

What disciplinary actions should Midwest consider?

? The gross revenues forecast demands to be continuously updated to see environmental factors such as conditions, competition and the economic system. Midwest is really lucky they did non run out of hard currency throughout the twelvemonth, due to the addition in disbursals.

? The market portion went down 1 % , which is tantamount to $ 55,259 in part border. They should see taking action to rectify this job.

? The 1973 discrepancy sum-up ( Figure 1 ) should be used in the planning of following twelvemonth & # 8217 ; s budget.

? Within Manufacturing & # 8211 ; The 1974 budget will necessitate to account for monetary value discrepancies ( e.i. sugar and milk )

? Midwest may see altering their market blend more frequently to capitalize on high border spirits, besides they should set up a committee policy for sales representative to promote them to sell high border merchandises.

? Finally Midwest should develop a formal control system to cover with fluctuations that occur throughout the twelvemonth.

RECCOMENDATIONS

Budgeting is likely the most important portion of corporate planning and control ; it is the agencies by which planning attempts are translated into dollars.

It would be recommended that Midwest get down a Zero-base budgeting system. This system is based on the premiss that every budget dollar requires justification. Unlike the traditional budget attack & # 8211 ; whereby outgos of the old old ages are automatically incorporated into the new budget proposal, and merely increases are scrutinised and subjected to debate & # 8211 ; zero-base budgeting topographic points all dollars, last old ages outgos and new petitions, on equal terms.

Besides Midwest should maximize their flexible budget capablenesss. This can be accomplished by making hebdomadal discrepancy cheques and seting the budget to accommodate the altering environmental conditions that were unforeseeable in the yesteryear ( conditions, economic system, competition, engineering ) . Making this will give Midwest an appropriate net income figure long before the books are completed at month terminal. More significantly, this will give Midwest clip to take disciplinary action on unwanted state of affairss.

Summary

Budgeting is the procedure that translates corporate purposes into specific undertakings, and identifies the resources needed by each director to transport them out. To make this well requires effectual communicating, sound co-ordination, and a acute hunt to happen new ways of bettering efficiency at the operating degree. Budgeting besides establishes specific fiscal and operational boundaries ( i.e. , criterions, marks, and ratios ) for monitoring intents. The budgeting procedure is really complicated and Midwest Ice Cream has done a moderately good occupation for their first effort.