An entrepreneurial crisis at Global Dental Equipment (GDE), a company selling used dental equipment. GDE had grown from a startup and reached a volume of activity such that the founder was no longer able to personally manage all of the day- to-day aspects of the business. The evolution of GDE from startup to rapid growth to bringing in outside investors and a Board of Directors is described. During its early years, GDEs accounting system supported historical reporting, compliance, and taxation requirements. However, GDE reached a point where it needed to use more detailed and relevant management accounting information to continue growing and transition through the entrepreneurial crisis. Such information can be provided by budgets and the variance analysis of actual results against budget.

QUESTION

1) Analyze and describe the potential factors that underlie favorable and unfavorable variances for each variance calculated.

2) Provide recommendations for GDE to improve its sales and operating income.

C D E F G H K N 1 Units Actual 1 M Dollar per Unit Budget S Variance Actual Original Budget Variance Flexible Budget Flex Budget Var Budget Actual 1 2 3A 3B 1 Revenue 4 Consignment 5 Inventory 6 Shipping 7 Handling 8 Service 9 Total Revenue 10 11 Variable Costs 12 Consignment 13 Inventory 14 Shipping 15 Handling 16 Service 17 Total V.C 88% 196 99 0% 296 100% S S S S s S 5,132 5435 5,564,011 5 43,174 S 46,806 S 543,787 $ 589,530 S 16.1965 17,559 S 119,345 S 129,184 5.855,055 S 6.147.212S (431,490) 5 (3,632) (45,743) S (1.363) S (10,039) S (492,267) S 6,306,635 S 26,845 S 685,562 5 11.851 S 129,184 7,162,279 5 (1.174.092.34 Consignment 16,129.18 Inventory (141,775.68 Shipping 2,341 32 Handling (10.039.00 Service (1.307,234 6151.88 146.25 6041.25 1976.25 1125 542755 83430 S 1,025.16 S (190.85) 255 S 295 21 181 55 5 111.65 51945 90.01 S 113.48 S (23.47) 25045 8.20 S 7,01$ 1.19 1125 S 1,060.84 S 1,150.08 S (89.24) 11495 0% s S S S S S 3,438 6625 3,727,921 S 8.272 S 8,969 S 464.225 502 276 S 11,067 S 11,998 5 21,772 $ 25,771 S 1,945,998 5 4,277,914 S 289,259 $ 697 S 19,051 S 931S 1,999 $ 101.916 4,225,467 $ 5,144 S 585,258 S 9,4655 25,771 S 4,851,105 s 786,805 Consignment (3.128 Inventory 121,033 Shipping (1.602 Handling 1,999 Service 905,107 6151.88 146.25 6041.25 1976.25 112.5 542755 558.96 S 255 S 56,56 5 51995 76.84 S 2505 S 5.60 $ 1125 S 211315 686.86 S 35.17 S 96.885 4.79 $ 229.08 S 127.90 (21.39) 20.03 (0.81) 17.77 0% 1% 100% 6151.88 S S s S S S 1,691 88! $ 14,902 S 79,562 S 5,129 S 95,573 S 1,909,047 s 1,836,112 5 37.817 5 86,254 5 5,561 S 103.613 S 2,069,378 5 19 Contribution Margin 20 Consignment 11% 21 Inventory 81% 22 Shipping 159 23 Handling 24 Service 80% 25 TotalC.M 119 26 27 Fixed Cost 28 29 Operating Income 30 31 (142,231) S (2.935) S (6,692) S (432) S (8.040) S (160,331) S 2,081,168 S 21,701 S 100 1055 4.187 S 103,613 5 2311,174 S (387,287 Consignment 13,201 Inventory (20,743) Shipping 742 Handling (8.040 Service (402,127 146.25 6041.25 1976.25 542755 275.14 5 118 10 S 2555 218.65 5 148.18 5 51945 13.17 S 16.60 S 2505 2.60S 2.225 1125 S 849.54 S 921,00 S (62.95) 90.26 (3.43) 0.18 (71.46) 1123 S 186,434 5 187,500 5 1,066 S 187,500 $ 1,066 S 1,522,613 S 1,681,878 5 S (159.265) s (159.265) S 1,921,674 S 1,921,674 5 (403.193) (401,061) 13 14 35 36 37 38 C D E F G H K N 1 Units Actual 1 M Dollar per Unit Budget S Variance Actual Original Budget Variance Flexible Budget Flex Budget Var Budget Actual 1 2 3A 3B 1 Revenue 4 Consignment 5 Inventory 6 Shipping 7 Handling 8 Service 9 Total Revenue 10 11 Variable Costs 12 Consignment 13 Inventory 14 Shipping 15 Handling 16 Service 17 Total V.C 88% 196 99 0% 296 100% S S S S s S 5,132 5435 5,564,011 5 43,174 S 46,806 S 543,787 $ 589,530 S 16.1965 17,559 S 119,345 S 129,184 5.855,055 S 6.147.212S (431,490) 5 (3,632) (45,743) S (1.363) S (10,039) S (492,267) S 6,306,635 S 26,845 S 685,562 5 11.851 S 129,184 7,162,279 5 (1.174.092.34 Consignment 16,129.18 Inventory (141,775.68 Shipping 2,341 32 Handling (10.039.00 Service (1.307,234 6151.88 146.25 6041.25 1976.25 1125 542755 83430 S 1,025.16 S (190.85) 255 S 295 21 181 55 5 111.65 51945 90.01 S 113.48 S (23.47) 25045 8.20 S 7,01$ 1.19 1125 S 1,060.84 S 1,150.08 S (89.24) 11495 0% s S S S S S 3,438 6625 3,727,921 S 8.272 S 8,969 S 464.225 502 276 S 11,067 S 11,998 5 21,772 $ 25,771 S 1,945,998 5 4,277,914 S 289,259 $ 697 S 19,051 S 931S 1,999 $ 101.916 4,225,467 $ 5,144 S 585,258 S 9,4655 25,771 S 4,851,105 s 786,805 Consignment (3.128 Inventory 121,033 Shipping (1.602 Handling 1,999 Service 905,107 6151.88 146.25 6041.25 1976.25 112.5 542755 558.96 S 255 S 56,56 5 51995 76.84 S 2505 S 5.60 $ 1125 S 211315 686.86 S 35.17 S 96.885 4.79 $ 229.08 S 127.90 (21.39) 20.03 (0.81) 17.77 0% 1% 100% 6151.88 S S s S S S 1,691 88! $ 14,902 S 79,562 S 5,129 S 95,573 S 1,909,047 s 1,836,112 5 37.817 5 86,254 5 5,561 S 103.613 S 2,069,378 5 19 Contribution Margin 20 Consignment 11% 21 Inventory 81% 22 Shipping 159 23 Handling 24 Service 80% 25 TotalC.M 119 26 27 Fixed Cost 28 29 Operating Income 30 31 (142,231) S (2.935) S (6,692) S (432) S (8.040) S (160,331) S 2,081,168 S 21,701 S 100 1055 4.187 S 103,613 5 2311,174 S (387,287 Consignment 13,201 Inventory (20,743) Shipping 742 Handling (8.040 Service (402,127 146.25 6041.25 1976.25 542755 275.14 5 118 10 S 2555 218.65 5 148.18 5 51945 13.17 S 16.60 S 2505 2.60S 2.225 1125 S 849.54 S 921,00 S (62.95) 90.26 (3.43) 0.18 (71.46) 1123 S 186,434 5 187,500 5 1,066 S 187,500 $ 1,066 S 1,522,613 S 1,681,878 5 S (159.265) s (159.265) S 1,921,674 S 1,921,674 5 (403.193) (401,061) 13 14 35 36 37 38