1. What were the factors that caused actual quarterly income to be less than budgeted ? What was the quantitative effect of each of these factors ? 1) Sales Variance: 40,800 negative effect
2) Marketing & Administrative costs : $ 45,000 negative effect
3) Labor Cost : $13,316
*For details please refer to exhibit 1
2.For which of these factors, if any, should Marelie be held responsible ?
- Strike is force majule, but Marelie does not prepare backup server in case of trouble. Can be Marie's responsibility - Sales forecast: OVAL market analysis was not enough. ROUND and SQUARE sales are almost within the budget in spite of shutdown, while OVAL is not. Both Board and Marelie should be held responsible. - Labor cost increase: Uncontrolable, basically there was a limit to what Marelie could have done to handle this issue. Maybe she could have done a better job to predict changes in the labor market, but still there was a limit to what she could have done. - Marketing and Administrative cost: Too much add on. The amount added is not only because shutdown damage but because start up stage needs a lot of ads to penetrate the market. The campaign giving free shipment to customers who bought more than $100 also increased logistics cost. Board (Marketing) and Marelie.
3.Should the target for the bonus be changed to reflect these factors ? explain.
The target for bonus should be adjusted to take into account factors that Marelie had no or limited control over. Factors such as changes in wage or, sales decrease due to server shut down, were basically uncontrollable factors. There are limits to what Marelie could have done to prevent these issues, and hence such effects should be considered to adjust a new target budget.