WHIZ CALCULATOR

CITRA DEWI WULANSARI14/374248/PEK/19683REGULER 36Case Chapter 4. Management Control System

Whiz Calculator

Bernard Riesman the new President of Whiz Calculator, background :

had been with the company for 5 years VP of manufacturing division for 2 years.

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

Whiz Calculator

Whiz 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 Budgeting

Selling 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

Budget Committee

Marketing Manager

Branch Manager

Selling Department

Accounting Department

Incremental Budgeting

Weaknesses in old method

Riesman believed, some weaknesses in old method.

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

2. Selling condition often change after the budget was adopted.

3. 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 method Zero Based Review

Old 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 2

Disadvantage of using per sales $ as a variable That would not reflect important influences on cost as order size,

selling difficulty in certain territories, buyer psychology, etc

Advantages of using per sales $ The most convenient measuring stick to use, “everyone knows the

meaning of $”

Expenses at minimum volume = $ 2,218

65% capacity = $250,000

Slope = 0.076 per sales $

Fixed = $ 318

Expense $

Sales volume ($000)

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

1,5173,5021,012

1,800

Questions

Q1. 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 1

The 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 2

Q2. 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 3

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

Answer It 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 4

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

Answer : Since the flexible costs are based on an amount

per sales $ which it doesn’t 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.