Professor John Shank, The Amos Tuck School of Business Administration Dartmouth College
This case is reprinted from Cases in Cost Management, Shank, J. K. 1996, South Western Publishing Company. The case was prepared by Professor John Shank from an earlier version he wrote at Harvard Business School with the assistance of William J. Rauwerdink, Research Assistant.
This case deals with the design and use of formal "profit planning and control" systems. It was originally set in an ice cream company in 1973, a few years before the advent of "designer ice cream".
Frank Roberts, Vice-president for Sales and Marketing of the Ice Cream Division of Boston Creamery, was pleased when he saw the final earnings statement for the division for 2000 (see Exhibit 1). He knew that it had been a good year for ice cream, but he hadn 't expected the results to be quite this good. Only the year before the company had installed a new financial planning and control system. This was the first year that figures comparing budgeted and actual results were available. Jim Peterson, president of the division, had asked Frank to make a short presentation at the next management meeting commenting on the major reasons for the favorable operating income variance of $71,700. Peterson asked him to draft his presentation in the next few days so that the two of them could go over it before the meeting. Peterson said he wanted to illustrate to the management group how an analysis of the profit variance could highlight those areas needing corrective attention as well as those deserving a pat on the back. THE PROFIT PLAN FOR 2000 Following the four-step approach outlined in the Appendix, the management group of the Ice Cream Division prepared a profit plan for 2000. Based on an anticipated overall ice cream market of about 11,440,000 litres in their marketing area and a market share of 50%, forecasted overall litre