Instrumental Ltd Vijay Govindarajan and John Shank This case requires the analysis of budgeted versus actual performance for dierent organizational functions and considers strategic versus operational issues. David Jones, president and principal shareholder of Instrumental Ltd, sat at his desk reflecting on the 2018 results (Exhibit_302.1). For the second year in succession the company had exceeded its profit target. David was obviously happy with the year's results. All the same, he wanted to get a better feel for the relative contributions of the R&D, manufacturing and marketing departments in this overall success. With this in mind, he called his assistant, Jennifer, a recent MBA graduate of the London Business School, into his office. Jennifer,' he started, 'as you can see from our recent financial results, we have exceeded our profit target by 622 000. Could you please prepare an analysis showing how much R&D, manufacturing and marketing contributed to this? Exhibit 302.1 Profit and loss account for year ending 2018 Budget (000) 16 872 9668 7 204 Actual (000) 17 061 9 865 7 196 Sales Cost of goods sold Gross margin Less: Operating expenses Marketing R&D Administration Profit before taxes 1856 1480 1340 1440 932 1674 4676 2 528 4046 3 150 Jennifer, flushed with all the ferxour and enthusiasm of a total convert to professional management got down to work immediately. She collected all the data in Exhibit_302.2 and then wondered somewhat disconsolately what her next step should be. Exhibit 302.2 Instrumental Ltd: additional information Electric motors (EM) Electronic instruments (EI) 40.00 30.00 180.00 206.00 20.00 21.00 50.00 54.00 Selling prices per unit Average standard price Average actual prices, 2018 Variable product costs per unit Average standard manufacturing cost Average actual manufacturing cost Volume information Units produced and sold - actual Units produced and sold - planned Total industry sales, 2018-actual Total industry variable product costs, 2018-actual Instrumental's share of the market (% of physical units) Planned Actual 141 770 124 800 44 million 62172 66 000 76 million 16 million 32 million 15% 10% 16% Planned 9% Actual Firm-wide fixed expenses (000) Fixed manufacturing expenses Fixed marketing expenses Fixed administrative expenses Fixed R&D expenses (exclusively for EI) 3872 1856 1340 3530 1440 1674 1480 932 Instrumental's products can be grouped into two main lines of business: electric motors (EM) and electronic instruments (EI). Both EM and EI are industrial measuring instruments and perform almost identical functions. However, EM is based on mechanical and electrical technology, whereas EI is based on the microchip. Instrumental Ltd uses a variable costing system for internal reporting purposes. QUESTION You are required to put yourself in Jennifer's position and state what you would do in your analysis of Instrumental's performance across its different departments and what you would recommend to the president
