Flash Inc.: A Comprehensive Variance Analysis

Kwadwo Asare

Bryant University

Smithfield, RI

Dennis Bline

Bryant University

Smithfield, RI

Robert Farrar

Bryant University

Smithfield, RI

INTRODUCTION

Flash Inc. is a United States$-$based semiconductor designer and manufacturer. All its manufacturing operations are based in the United States, but it has customers all over the world, especially in Asia, where many computer and cell phone manufacturers outsource their production. Flash's chipsets are used in three main market segments: personal computers and laptops, Internet of Things $($IoT$),$ such as home surveillance cameras and thermostats controllable through applications on a smart phone, electronic toll collection systems, among others, and data centers.

CURRENT PERFORMANCE

In preparation for Flash's $2022$ annual report, the chief financial officer $($CFO$),$ Rick Rosenfeld, has asked the treasurer, Theresa Whitman, and her team to perform a comprehensive variance analysis that explains the primary drivers of changes in planned revenue and costs of production. This request was made because the CFO and chief executive officer $($CEO$)$ needed to explain Flash's $2022$ performance to investors and analysts through a conference call before it is subsequently incorporated into the annual report.

Net income was lower than planned for $2022$ by about $8\%$ or $$144$ million, and sales were lower than planned by about $3\%$ or $$429$ million $($see Table $1).$ Flash sets its selling prices at two times the cost of production. Therefore, Cost of Goods Sold $($COGS$)$ is always approximately $50\%$ of sales. ${?}^1$ Changes in costs are very important since inefficiencies in production costs are reflected in prices that in turn can influence demand.

Theresa calls the assistant treasurer, John Burns, and the new senior financial analyst, Antoine Banks, a recent graduate of a top$-$ranked masters of business administration $($MBA$)$ program, into her office to assign them the variance analysis task.

Theresa: It's that time of year again, but unfortunately this time we have less than a week to get al our analyses and related PowerPoint slides done. We typically have about a week and a half. Just hov the calendar turned out this year, what can I say?