FairLinks Golf Corporation manufactures golf clubs, balls, and other equipment. The companys latest design for a driver, the Annihilator, caught the attention of several PGA Tour professionals, who raved about its performance publicly (without an endorsement deal in place). The driver, made of vibranium, is lighter than any other driver on the market but generates more force for the average golfer than its counterparts. At the beginning of the year, FairLinks management team developed the following master budget for the Annihilator line: Master Budget Annihilator Sales (# of clubs) 5000 Sales price per club $280 Material costs:

Vibranium 1,000 grams @ $0.05 per gram: $50 Graphite shaft 1 per club @ $8: $8 Rubber grip 1 per club @ $10: $10 Labor costs:

3 hours @$20/hr: $60 Fixed costs (for the year): $250,000 After seeing these numbers, the companys CEO Cheryl Ford wondered if there was a way to increase profit from the exciting new line and capitalize on the momentum it had gained in the golfing community. She had two ideas: 1) reduce the selling price to $245, which she believed would substantially increase sales, or 2) rent a new grinding machine for the coming year. The rental would cost $50,000 for the year, but would hopefully reduce materials waste and labor time associated with making each Annihilator. That is, since each one weighed just 350 grams, Cheryl wanted to find a way to reduce the 650 grams (1,000 350) of vibranium and other materials that were wasted in the production process, and that doing so would also reduce the time needed to fabricate each club. Cheryl implemented both ideas, and at the end of the year, the actual results were as follows: Actual Results

Annihilator Sales (# of clubs): 5,600 Sales price per club: $245 Material costs:

Vibranium 700 grams @ $0.05 per gram: $35 Graphite shaft 1 per club @ $8: $8 Rubber grip 1 per club @ $12: $12 Labor costs

2.5 hours @ $20/hr: $50 Fixed costs (for the year): $300,000 Given the preceding information, answer the following and show all work: 1) What was the master budget profit for the Annihilator for the most recent year? 2) What was the actual profit for the most recent year? 3) Prepare the flexible budget for the Annihilator for the most recent year. 4) Did reducing the selling price turn out to be a good idea? Which variances help you assess that decision? By how much did profit increase or decrease as a result of the change in selling price? 5) Did renting the new machine turn out to be a good idea? Which variances help you assess that decision? By how much did profit increase or decrease as a result of that change? 6) Briefly discuss why Cheryl should care about the variances you calculated and how they might be used to improve her decision making. 7) How might Cheryl use this information as part of her evaluation of any lower-level managers her company employs? In other words, what information from the budget reports would be useful for evaluating the performance of those with decision-making capabilities within the company? 8) If Cheryls company could make improvements to their production process to increase the efficiency of their material use, roughly how much should they be willing to pay for those improvements? Admittedly there is no single right answer here and you may need to make an assumption or two I just want you to think about what the inefficiencies are costing the company and what they may be willing to do to eliminate them.