Whiz Calculator Citra dewi wulansari 14/374248/PEK/19683 Reguler 36

Whiz Calculator

Citra dewi wulansari14/374248/PEK/19683Reguler 36Case Chapter 4. Management Control System

Whiz CalculatorBernard Riesman the new President of Whiz Calculator, background :had been with the company for 5 yearsVP of manufacturing division for 2 years.

The existing old method of planning & controlling selling cost was unsatisfactory.

Whiz CalculatorWhiz Calculator Company is into manufacturing the complete line of electronic calculators. Their products are sold through branch offices to wholesalers to retailers or directly to government or industrial users.

Whiz Calculator Company is currently considering the new method of planning and controlling selling cost.

Old Method of BudgetingSelling expenses were budgeted on a fixed or appropriation basis.

the accounting department sent records of actual expenses for the preceding year and for the current year -to- date.

Guided by this record, department heads drew up & submitted estimates of the expenses of their department for the succeeding year.

Final approval is in Budget Committee

Incremental Budgeting

Weaknesses in old methodRiesman believed, some weaknesses in old method.

Uncertainty the reasonableness of the estimates budget made by the various department heads.

Selling condition often change after the budget was adopted.

But there is no guarantee if there are some increase in sales budget expense then there would be an increase in sales volume.

Exhibit 1

Implementation of New methodZero Based ReviewOld budgeted figures were divided into 12 equal amounts and compared to each month actual results.

Variable basis. Similar method that use in manufacturing Setting selling cost budget standards on a fixed and expenses.

Variable portion of the selling expense standard expressed as a certain amount /per sales $.

Set up a minimum sales volume which is 65% of current factory capacity.

Exhibit 2Disadvantage of using per sales $ as a variableThat would not reflect important influences on cost as order size, selling difficulty in certain territories, buyer psychology, etcAdvantages of using per sales $The most convenient measuring stick to use, everyone knows the meaning of $

Expenses at minimum volume = $ 2,21865% capacity = $250,000Slope = 0.076 per sales $Fixed = $ 318Expense $Sales volume ($000)

The new method drastically reduce most of the unfavorable expenses in budget report

1,5173,5021,012

1,800

QuestionsQ1. From the information given in Exhibits 1 and 3, determine insofar as you can whether each item of expense is(a) variable with sales volume(b) partly variable with sales volume(c) variable with some other factors or(d) not related to output variable at all.

Answer Question 1The old system, Exhibit 1, the figures of selling expenses are fixed or appropriation based on the previous year and managers use it to estimate the selling expense budget for succeeding year. Which is called as an incremental budgeting system.

However the result is that the selling expenses budgeting as an input are not match with the expected output.

So, the answer is (D). The old system, expenses are not related to output variable at all.

Question 2Q2. What bearing do your conclusions in question 1 have on the type of budgeting system that is most appropriate?

Answer :After evaluate the old method and starting all from the scratch to find the most suitable method for budgeting, The new method for budgeting is most appropriate since attends to be more accurate in representing between the input which is the flexible budget and the output, actual budget.

Question 3Q3. Should the proposed sales expense budgeting be adopted? Why or Why not?

AnswerIt should be adopted.The new method, which is able to determine the flexible budget with more accuracy and efficiently for predicting future demands for the business and adjusting for unexpected external factors than can affect productivity.

Question 4Q4. What other suggestions do you have regarding the sales expense reporting system for Whiz Calculator?

Answer :Since the flexiblecostsare based on an amount persales $ which it doesnt consider the nature of each selling territory , order size, or consumer behavior.Plus, not all highlighted selling expenses are variable to sales and some are only partly variable to sales.The company should learn to gather more data about market demands for each region and do some research about consumer behavior analysis or trend.