This problem is from Berkshire Toy Company

Compare the flexible and master (static) budgets and prepare a schedule showing the sales volume variance. Compare the actual results and the flexible budget, and prepare a schedule showing the flexible budget variance. Subdivide the flexible budget variances into the appropriate price (rate or spending) and efficiency (usage or quantity) variances for materials, labor, and variable overhead. b. Compute the bonuses earned in flscal 1998, if any, by David Hall of the purchasing department, Rita Smith of the marketing department, and Bill Wilford of the production department. 2. a. You will be assisting in the investigation of certain variances. Using the information provided, formulate some likely explanations for the observed variances. b. Comment on the advantages and disadvantages of the incentive compensation plan as it applies to department heads. What is the appropriate role of the budget in performance evaluation? What modifications to the incentive plan would you recommend? Why? 3. (Optional) Suppose that Berkshire Toy Company adopts a balanced scorecard (BSC) to measure its performance. What performance dimensions are typically included in a BSC? What specific performance measures (indicators) might be included in the scorecard?

- BERKSHIRE TOY CASE - GIVEN INFORMATION actual budgeted actual mix budgeted mix revenues retail selling price 49 49 internet selling price 42 42 wholesale selling price 32 32 retail sales volume 174965 238000 53.74% 85.00% internet sales volume 105429 32.38% 0.00% wholesales sales volume 45162 42000 13.87% 15.00% total sales volume 325556 280000 TABLE 3 TABLE 2 actual quantity actual price standard quantity standard price input acrylic fabric 7910 32.4174 0.02381 35 per bolt acrylic eyes 661248 0.19 2 0.19 per eye plastic joints 1937023 0.127 5 0.14 per joint polyster filling 344165 1.31 0.9 1.45 per pound woven label 328447 0.05 1 0.05 each designer box 315854 0.22 1 0.24 each accessories 325556 0.20277 1 0.12 each bud, production 280,000 actual 325,556 sewing stuffing and cutting assembly dressing and packaging total hours 189211 104117 121054 34615 448997 8.17 8.17 8.17 8.17 0.5 0.3 0.3 0.1 336000 Oood 8 hour 8 hour 8 hour 8 hour 448997 uu 1,725,665 $ $ 1.2 1.2 1 variable overhead fixed overhead variable selling fixed selling administrative expenses 1,046,304 $ 661,920 3.843377 658897 5.712055683 5023192 1123739 325556 3.114 per DLH 1.97 4.351 15.94 4.01 1859594 $ $ 4,463,000 1,124,000 VARIANCE ANALYSIS 7 1 Actual 2 3 Price Variance Flexible Budget (Actual Mix) 4 5 Mix Variance Flexible Budget (Budgeted Mix) 6 Volume Variance Master (Static) Budget Units sold (output volume) 325,556 325,556 325,556 280,000 PM PSMSQ PSMSQS Revenues retail internet wholesale Total Revenue 8,573.285 4,428,018 1,445,184 14,446,487 0 0 0 0 0 11,662,000 0 1,344,000 13,006,000 0 0 1 2 3 5 6 7 Master (Static) Budget Quantity/ Efficiency Variances Price/Rate Variances Volume Variance Actual Flexible Budget Units sold (output volume) 325,556 325,556 325,556 280,000 PANAQA PSN AQ PSN SQA PSN SQS Direct Materials: acrylic fabric acrylic eyes plastic joints polyster filling woven label designer box accessories Total Direct Materials Direct Labor: sewing stuffing and cutting assembly dressing and packaging Total Direct Labor 256,422 125,637 246,002 450,856 16,422 69,488 66,013 1,230,840 233,338 106,400 196,000 365,400 14,000 67,200 33,600 1,015,938 0 0 0 1,545,854 850,636 989,011 282,805 3,668,305 1,120,000 672,000 672,000 224.000 2,688,000 0 0 Flexible Budget Variance Volume Variance (17023366) Variable Overhead 1,725,665 1,216,538 1,046,304 Fixed Overhead Total Overhead 658,897 2,384,562 661,920 1,878,458 0.00 (170233.66) 661,920 1,708,224 0 Total Production Costs Gross Margin 7,283,707 7,162,780 1,878.458 (1,878,458) 3533704.34 (9472295.66) 5,412,162 7,593,838 Variable Selling Fixed Selling Administrative Total SG&A Costs 1,859,594 5,023,192 1,123,739 8,006,525 Flexible Budget Variance (443,100) (560,192) 261 (1,003,031) 1,416,494 4,463,000 1,124,000 7,003,494 Volume Variance (198,214) 0 0 (198,214) Volume Variance (9,670,510) 1,218,280 4,463,000 1,124,000 6,805,280 Flexible Budget Variance 8,038,207 Operating Income (843,745) (8,881,952) 788,558 - BERKSHIRE TOY CASE - GIVEN INFORMATION actual budgeted actual mix budgeted mix revenues retail selling price 49 49 internet selling price 42 42 wholesale selling price 32 32 retail sales volume 174965 238000 53.74% 85.00% internet sales volume 105429 32.38% 0.00% wholesales sales volume 45162 42000 13.87% 15.00% total sales volume 325556 280000 TABLE 3 TABLE 2 actual quantity actual price standard quantity standard price input acrylic fabric 7910 32.4174 0.02381 35 per bolt acrylic eyes 661248 0.19 2 0.19 per eye plastic joints 1937023 0.127 5 0.14 per joint polyster filling 344165 1.31 0.9 1.45 per pound woven label 328447 0.05 1 0.05 each designer box 315854 0.22 1 0.24 each accessories 325556 0.20277 1 0.12 each bud, production 280,000 actual 325,556 sewing stuffing and cutting assembly dressing and packaging total hours 189211 104117 121054 34615 448997 8.17 8.17 8.17 8.17 0.5 0.3 0.3 0.1 336000 Oood 8 hour 8 hour 8 hour 8 hour 448997 uu 1,725,665 $ $ 1.2 1.2 1 variable overhead fixed overhead variable selling fixed selling administrative expenses 1,046,304 $ 661,920 3.843377 658897 5.712055683 5023192 1123739 325556 3.114 per DLH 1.97 4.351 15.94 4.01 1859594 $ $ 4,463,000 1,124,000 VARIANCE ANALYSIS 7 1 Actual 2 3 Price Variance Flexible Budget (Actual Mix) 4 5 Mix Variance Flexible Budget (Budgeted Mix) 6 Volume Variance Master (Static) Budget Units sold (output volume) 325,556 325,556 325,556 280,000 PM PSMSQ PSMSQS Revenues retail internet wholesale Total Revenue 8,573.285 4,428,018 1,445,184 14,446,487 0 0 0 0 0 11,662,000 0 1,344,000 13,006,000 0 0 1 2 3 5 6 7 Master (Static) Budget Quantity/ Efficiency Variances Price/Rate Variances Volume Variance Actual Flexible Budget Units sold (output volume) 325,556 325,556 325,556 280,000 PANAQA PSN AQ PSN SQA PSN SQS Direct Materials: acrylic fabric acrylic eyes plastic joints polyster filling woven label designer box accessories Total Direct Materials Direct Labor: sewing stuffing and cutting assembly dressing and packaging Total Direct Labor 256,422 125,637 246,002 450,856 16,422 69,488 66,013 1,230,840 233,338 106,400 196,000 365,400 14,000 67,200 33,600 1,015,938 0 0 0 1,545,854 850,636 989,011 282,805 3,668,305 1,120,000 672,000 672,000 224.000 2,688,000 0 0 Flexible Budget Variance Volume Variance (17023366) Variable Overhead 1,725,665 1,216,538 1,046,304 Fixed Overhead Total Overhead 658,897 2,384,562 661,920 1,878,458 0.00 (170233.66) 661,920 1,708,224 0 Total Production Costs Gross Margin 7,283,707 7,162,780 1,878.458 (1,878,458) 3533704.34 (9472295.66) 5,412,162 7,593,838 Variable Selling Fixed Selling Administrative Total SG&A Costs 1,859,594 5,023,192 1,123,739 8,006,525 Flexible Budget Variance (443,100) (560,192) 261 (1,003,031) 1,416,494 4,463,000 1,124,000 7,003,494 Volume Variance (198,214) 0 0 (198,214) Volume Variance (9,670,510) 1,218,280 4,463,000 1,124,000 6,805,280 Flexible Budget Variance 8,038,207 Operating Income (843,745) (8,881,952) 788,558