please answer a-c
as the basis for performance evaluation. 17. CMA-ADAPTED VARIANCE ANALYSIS Engineers Education Association (EEA) is a volun- teer membership organization providing educational and professional services to its members. The profes- sional staff is organized into four divisions with a total of 14 operating departments. EEA adopted an annual budget program many years ago as a means for planning and controlling activities. Each department of EEA prepares an annual budget in consultation with its respective vol- unteer committee(s). After a series of reviews by both the professional staff and the volunteer structure, the budget is adopted. The professional staff is expected to comply with the budget in conducting its activities and operations P P Su Co ness Process CHAPTER France PROBLEM 17: VARIANCE ANALYSIS Frankl Gily th December 9, 2015 TO: FROM: ve the be Page ure designated as Problem 17. a 1 Fran Re a - steam. monthly income statements that present actual per The EEA's accounting department generales formance as compared to budget for each EEN department. The November 2015 statement for the publications department is shown in the first frutt designated Problem 17. Accompanying the report this month was a memorandum from EEA's presi dent, Daniel Riley, which is shown in the second fig. SUBJECT: Performance Analysis Marie Paige, publications manager, was having The November 2011 operating results for your lunch with Jon Franklin, continuing education department are attached. The results for the entire manager, when the following conversation about organization and most departments are unfavor able as compared to budget. In fact, our results for the first three months of this fiscal year are Department Managers Daniel Riley, President Riley's memorandum took place. 3. substantially below budget PROBLEM 17: VARIANCE ANALYSIS I want to determine our problems as quickly as possible. Prepare an explanation of all unfavor EEA-PUBLICATIONS DEPARTMENT able (negative) variances by line item that exceed INCOME STATEMENT budget by 5 percent or more, and present a plan FOR THE MONTH ENDED NOVEMBER 30, 2015 to eliminate such variances in the future. Remem- (5000 OMITTED) ber that you played a key role in the development of the budget, and you have a responsibility to Variance achieve the budget figures. These negative vari- Budget Actual Dollar Percent ances must be eliminated if we are to get back on Revenues Subscriptions $ 9.5 $ 8.4 $ (1.1) (11.6) Please submit your analysis to your divisional Library director and accounting by noon, Monday, Decem subscriptions 3.4 3.3 (.1) (2.9) ber 14. Divisional directors will meet at 10a.m. on Research Tuesday, December 15, to review these analyses. publications 13.6 15.2 1.6 11.8 Advertising 64.0 50.1 (13.9) (21.7) List rentals 15.2 13.9 (8.6) Paige: The volunteers must be giving Riley some Total revenue $105.7 590.9 $(14.8) (140) static the memo doesn't sound like him. Operating expenses Franklin: I think you're right. One of EA's pro- Salaries and blems is that membership is down. wages $ 24.0 8.3 $ 22.0 $ 2.0 Paige: I heard that both growth and retention are Employee bad. This is confirmed by my results. A set per- benefits 4,8 4.4 centage of the membership dues of each member Temporary help 0.0 1.5 (1.5) is assigned to us each month for the magazine Outside services subscription. This amount is down 12 percent 1.0 2.5 Education and I have no control over this number because training only members get the magazine 0.5 0.0 Promotion and advertising 7.5 4.0 Typesetting 8.0 12.0 Production printing 46.0 40.4 Postage, freight and handling 12.0 11.0 Supplies 1.0 .8 $104.8 Contribution $ .95 (7.7) b 83 (ERR) (1.5) (1500) 1000 in 3.5 (4.0) 466 (500) 12. 2 5.6 Total expenses 1.0 2 5 $ (8.6) $ 98.6 5.9 (955.6) Franklin: I wonder if the results are really as bad as they look. For instance, accounting has divided all of the annual budget figures by 12 to derive the monthly figures. This is okay for some things but not for most. What about you? Paige: I agree. I don't know why they do that when we spend so much time up front developing the annual budget. I know what Riley is attempting. but I don't think he is going to get the results he wants. I know he wants to eliminate the negative variances, but some positive variances are really not favorable! We should be analyzing all signif- icant variances positive and negative. Franklin: What are you going to do analyze just the negatives? Should we do anything before we prepare our reports? Cong Looming Required a. The monthly income statements that EEA's accounting department prepares for each depart- ment of EEA are a form of communication. 1. Explain why the departmental income statements are considered a form of communication 2. In terms of the format of the income state- ment presented for the publications depart- ment, evaluate EEA's departmental income statement as a communication device. b. Paige stated that all significant variances should be analyzed because some positive variances are not favorable. Discuss why EEA's departments should be analyzing all significant variances, both positive (favorable) and negative (unfavour- able). As support for your answer, identify a pos- itive variance from the publications department's income statement that may not be favorable to EEA's operations, and explain why. c. Recommend a course of action that Paige or Franklin could take to encourage Riley to have all significant variances reviewed he 0- ure ber ine nt. use
