1. Based upon your review of the variance data presented in the case (favorable (F) means that the varianceincreased operating income, Unfavorable (U) means a given item decreased operating income), who do you think is doing the best overall job of managing his division? Please justify your answer using thevariance data as given in the text. You may manipulate these data any way you like. For instance, you might want to compute the percent of the budgeted item that each variance represents, as wellas its F or U impact.
2. Suppose that the capacity shortfall in Spain hadn’t happened and Andres had not had to import 603,000 liters of ice cream from France, thus selling 3,575,000 liters of icecream he manufactured in his own division. What would have happened to Andres’ Spanish profitability. You must adjust exhibit 4 in an Excel spreadsheet to determine the outcome. How would thepattern of F’s and U’s change? Would this outcome change your view of Andres’ competence? Why?
This is a tough one, so it’s good we have a really capable group tackling it. Still,you’re gonna need help. I have also put an EXCEL spreadsheet on line for you to understand. It shows a more detailed variance analysis of just the Italian region than the one shown in Exhibit 3 ofthe text. Take a look at it. Make sure you understand how the cells are being computed.
Some definitions are in order. First, a flexible budget (as opposed to a static budget) allows for the factthat the actual amount sold may not be the same as the amount expected to be sold. What a flexible budget does is to adjust the budget for unanticipated differences in amounts sold or purchased asinputs. We do this by multiplying the actual volumes of output and inputs by the budgeted price per unit of output. Then, to get a flexible budget variance, we subtract from the flexible budget...