Whiz Calculator Company is currently considering the new method of planning and controlling selling cost. The old method was unsatisfactory in the new president's point of view. The old way of planning and controlling the selling expenses was as follows: 1.Selling expenses were budgeted on a "fixed" or "appropriation" basis. Each October, the accounting department sent to the branch managers and to other managers who were in charge of selling departments a detailed record of the actual expenses of their department for the preceding year and for the current year- to- date. 2.Guided by this record, by estimates of the succeeding year's sales, and by their judgment, these department heads drew up and submitted estimates of the expenses for their departments for the succeeding year. 3.The estimates made by the branch managers were then sent to the sales manager, who was in charge of all branch sales. He determined whether or not they were reasonable and cleared up any questionable items by correspondence. 4.Upon the approval by the sales manager, the estimates of branch expenses were submitted to the manager of marketing, who was in charge of all selling, promotional, and warehousing activities. 5.Then the manager of marketing discussed these numbers with the managers concerned, and after differences were reconciled, the estimates of all selling departments were combined into selling expense budget. 6.This budget was submitted to the budget committee for final approval. These budgeted figures were divided into 12 equal amounts and compared to each month actual results. In the new president's point of view there were two limitations of the old method. Firstly, there was no 100 percent confidence in reasonableness of the estimates made by department heads. Secondly, selling conditions changed substantially after the budget was adopted, however under the old method it was impossible to modify the budgeted expenses for these changes. Therefore, the new president introduced a proposal of measuring selling cost on a fixed and variable portion basis.
The Key Questions of the case study.
Bernard Riesman, the president of Whiz Calculator Company, was very concerned about the method of measuring and appraisal of selling expenses. He was very sure that the method used was the thing to be changed in the company. Therefore, he introduced a proposal of new method of measurement. Under his proposal all selling expense items should be divided into two portions. One portion is variable to the sales and another is fixed. He thinks that this method would be better in making budgeted selling expense report, because the new method makes it possible to adjust the budgeted report to the increased sales volume. In implementing the new method some points should be clarified: 1.What selling expenses are variable to sales, what are partially variable and is there any expenses that are not dependent on sales at all?
2.What proportion of each expense is variable and which is not? How to calculate them? In addition to above key questions for the Whiz Calculator Company, we, as students of strategic management, want to know the strength and limitations of new method. Compare it with the strength and weaknesses of old method. Choose the one that is more appropriate. Also we want to find what company management should do in order to improve the method it will use. Analysis and Interpretation of Available Data
As it was mentioned before the company management wanted to know what portion of selling expense items are variable to the sales volume, are they variable at all and are they variable on some other factors. Branch: A
Manager: N.L. Darden
BudgetActual(Over)/UnderPercent of Sales
Net Sales $ 310,000 $261,000 $ 49,000 0 Manager's Salary $ 2,500 $ 2,500 $ - 0.96% Office Salaries $...