Case Study 1
Montana Farm is a 400-acre farm on the outskirts of San Bernardino Plains, one of the major suppliers free range eggs in the country. A recent breakout of bird flu in the Asia pacific region has affected the industry amid health concerns which has led to a decline with the demand, and it has made the business extremely competitive. To meet the competition, Montana Farm planned in 2017 to advertise more extensively, boost health of laying hens with regular monitoring of veterinary specialists and sourcing grain from trusted suppliers.
The budget report for 2017 is presented below. As shown, the static income statement budget for the year is based on an expected 69,000 laying hens producing 568,100 dozen of eggs at $3.95 per dozen.
The variable expenses were budgeted as follows:
Per laying hen per month: feed $1.05, nutrition $0.12, supplies $0.06
Per dozen eggs produced: delivery $0.30
All other budgeted expenses were either fixed or mixed expenses.
During the year, management decided not to replace a farm hand who quit in March, but it did issue a new advertising brochure and paid for more promotion and advertising.
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MONTANA FARM
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Static Budget Income Statement
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For the Year Ended December 31, 2017
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Actual
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Master
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Difference
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Budget
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Number of laying hens
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65,423
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69,000
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3,577
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U
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Number of dozen eggs produced
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510,299
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568,100
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Sales
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$1,939,138
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$2,243,995
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304,857
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U
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Less: Variable expenses
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Feed
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840,031
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869,400
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29,369
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F
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Nutrition
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109,911
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99,360
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10,551
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U
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Supplies
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62,806
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45,540
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17,266
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U
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Delivery expenses
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153,090
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170,430
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17,340
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F
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Total variable expenses
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1,165,838
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1,184,730
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18,892
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F
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Contribution margin
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773,300
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1,059,265
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285,965
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U
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Less: Fixed expenses
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Depreciation
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60,000
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60,000
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0
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F
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Insurance
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69,000
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69,000
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0
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F
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Utilities
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62,000
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58,000
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4,000
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U
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Repairs and maintenance
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30,000
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25,000
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5,000
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U
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Salary and wages
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216,000
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230,000
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14,000
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F
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Delivery expenses
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0
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F
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Veterinary fees
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87,000
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75,900
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11,100
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U
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Advertisement
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120,000
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105,000
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15,000
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U
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Entertainment
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7,000
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5,000
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2,000
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U
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Total fixed expenses
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651,000
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627,900
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23,100
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U
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Net income
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122,300
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431,365
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309,065
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U
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Instructions
(a) Based on the static budget report:
1. What was the primary cause(s) of the loss in net income?
2. Did management do a good, average, or poor job of controlling expenses?
3. Were management's decisions to stay competitive sound?
(b) Prepare a flexible budget report for the year.
(c) Based on the flexible budget report, answer the three questions in part a above.
(d) What course of action do you recommend for the management of Montana Farm?
Case Study 2
You are the management accountant at Luxe Fashion Retail Limited (LFR) reporting to the CFO, Mark Newson.
LFR is a company listed on the Australian Securities Exchange. LFR has eight stores across Australia and New Zealand, with its flagship store situated in central Melbourne. Its stores stock luxury clothing, footwear and accessories, as well as cosmetics and beauty products for both men and women.
LFR's strategy is to be the leading retailer of luxury goods in Australia and New Zealand, providing the best of life's luxuries to customers and a superior return to shareholders as it continues to expand and grow the business.
The company has a reputation for stocking the best quality and range of products. Careful consideration is given at a senior management level to the product lines and brands stocked, to ensure that the company's reputation is maintained. The following information is provided to assist you with completing the tasks below.
Product range
LFR stocks an extensive range of many well-known luxury brands (e.g. Chanel, Gucci and Burberry). It also stocks a number of lines under exclusive agreements with suppliers, ensuring it is the sole local retailer. As a result, approximately 30% of product stocked by LFR is not available anywhere else in Australia or New Zealand. LFR head office employs a highly skilled buyer to manage its stock lines and to determine customer pricing. Although the company does stock a number of locally designed and made product lines, the majority of its stock is imported
Purchasing
A key area of focus for the board relates to the purchasing of stock. Depending on the nature of the product, lead times between placing a non-cancellable order and receiving the stock can be significant. For example, clothing collections often need to be ordered 12 months in advance.
In-store experience
Similarly, the in-store experience of customers is considered pivotal for LFR, particularly in light of the increasing popularity of online retailers. Sales staff are trained to provide a personalised shopping experience for each customer. Many of the sales staff have developed close relationships with their customers who they have been serving for many years, and who buy most of their wardrobes from LFR. The ambience of the store, which refreshes its displays regularly, is seen as critical to attracting new customers and retaining existing customers. High-value existing customers are issued with a LFR gold privileges card and their preferences are recorded in a customer database. While in the store, they are served coffee or champagne. All other customers are offered a bronze privileges card, if they do not show a card at time of purchasing.
Store manager responsibilities
Each of the eight stores is run by an experienced store manager. They are responsible for the store opening hours, store layout and design display, resupply of stock from the central warehouse, staff management and the customer experience while in the store.
Instructions
For this activity you are required to complete the following tasks:
1. Develop a balanced scorecard for LFR at the organisation level by:
a) Identifying at least one LFR's strategic objectives in each of the perspectives (i.e. financial, customer, internal process, and learning and growth).
b) Developing a measure in the form of a KPI for each objective identified. Use the template below in completing task 1
2. Now apply the balanced scorecard you have developed at the store level. (You have recognised that the measures appropriate for each store may differ from those developed at the organisational level.)
a) Describe why internal perspective measures that are appropriate at an organisational level may not be appropriate at an individual store level.
b) Develop two (2) new KPIs which would be appropriate to include in the internal process perspective of a balanced scorecard for the individual stores.
c) For each measure included explain how it links back to LFR's strategy. Use the template below in completing task 2 b and c