Waltham Motor Division Case
Company Background and Key Factors
Waltham Motors was originally a family owned business. The sole product manufactured was electric motors of a single design that were sold to household appliance manufacturers. In late 2003, Marco Corporation acquired it as their subdivision. Marco's management decided to observe Waltham Motors current operating procedures and systems on order to see how well they are functioning.
In April 2004, Sharon Michaels, was transferred from the corporate headquarters controller's office to Waltham Motors as a division controller. Later, she was joined by Davis Marshall as the new division manager.
Waltham Motors lost a major contract at the end of April 2004. With this loss, there was an environment of apprehensiveness throughout the month of May. So in order to analyze results of operations for the month of May, Sharon Michaels requested the accountant to prepare the performance report as soon as possible. In normal circumstances, it takes several days for the accountant to prepare the performance report. However, the performance report was prepared in a day's time for the month of May. This not only surprised Michaels but also made her uneasy about the accuracy of calculations, as the ultimate loss of $7,200 was unexpected given the projected profit of $91,200 as per the budget.
The budget for 2004 was based on estimated sales and production costs. As sales were not subject to seasonal fluctuations, the monthly budget was merely one-twelfth of the annual budget. No adjustments were made to the budget for the month of May after the contract was lost in April.
Financial Analysis: Budget versus Actual
One important thing to consider when looking at the budget versus the actual sales numbers is the breakeven point. This is the point at which expenditures and revenues equal zero, so while there is no profit, there is no loss, either. This calculation is considered an important statistic for businesses to know and
Waltham Motors was originally a family owned business. The sole product manufactured was electric motors of a single design that were sold to household appliance manufacturers. In late 2003, Marco Corporation acquired it as their subdivision. Marco's management decided to observe Waltham Motors current operating procedures and systems on order to see how well they are functioning.
In April 2004, Sharon Michaels, was transferred from the corporate headquarters controller's office to Waltham Motors as a division controller. Later, she was joined by Davis Marshall as the new division manager.
Waltham Motors lost a major contract at the end of April 2004. With this loss, there was an environment of apprehensiveness throughout the month of May. So in order to analyze results of operations for the month of May, Sharon Michaels requested the accountant to prepare the performance report as soon as possible. In normal circumstances, it takes several days for the accountant to prepare the performance report. However, the performance report was prepared in a day's time for the month of May. This not only surprised Michaels but also made her uneasy about the accuracy of calculations, as the ultimate loss of $7,200 was unexpected given the projected profit of $91,200 as per the budget.
The budget for 2004 was based on estimated sales and production costs. As sales were not subject to seasonal fluctuations, the monthly budget was merely one-twelfth of the annual budget. No adjustments were made to the budget for the month of May after the contract was lost in April.
Financial Analysis: Budget versus Actual
One important thing to consider when looking at the budget versus the actual sales numbers is the breakeven point. This is the point at which expenditures and revenues equal zero, so while there is no profit, there is no loss, either. This calculation is considered an important statistic for businesses to know and