CASE 22-3 ZUMWALD AG

1. Sourcing decision for the X73 materials in the best interest of:

a. The Imaging Systems Division

It will be profitable for them to purchase the equipment from Display
Technologies Plc since they can save approximately €39,500 per X73 System. It
will help them as well in setting good market price for the product if they can get
the materials in a lower price. However, ISD should not operate for its own
benefits alone. They need to consider the company as a whole as well. Since
they are the main door of the company for the profit directly from the
consumers, it is not difficult for them to adjust the price of their product since it
will be shouldered by the consumers. Instead, it is the company’s opportunity as
a whole to have a bigger profit.

b. The Heidelberg Division

Considering their profits, they need to persuade ISD to accept their bid. If ISD
can’t afford the price, they can consider out sourcing the materials from other
company to be able to adjust the pricing of their materials without
compromising their profits. However, ECD will suffer. For the sake of the
company, Heidelberg needs to negotiate with ISD. There is an assurance that
there will be a better decision for the benefits of all. One of them is ISD’s
sacrificial increase of the product’s market price.

c. The Electronics Components Division

ECD should help Heidelberg Division to close the bid by producing materials
with lower price since it is possible based on the price offering by Display
Technologies Plc. If they don’t, ECD needs to look for other customer. It is more
difficult and expensive to loss customers than to keep them.

d. Zumwald AG
The company needs to make sure that its each division should be benefiting
in every business activity. In this case, if anyone of them will consider outsourcing
from other company other division will suffer especially the ECD. To secure the
company’s big win, its every division should collaborate to support the
company’s main goal. In this case, they should avoid selfish decisions but
focusing on the company’s gain as a whole. They should set aside outsourcing
but patronizing their own.

2. What should Mr. Fettinger do regarding the X73 issue?

Mr. Fettinger, as a profit representative of the Zumwald AG’s company as
a whole, needs to make sure that the company’s division should work
 collaboratively to make sure that the profit will stay within the company. He
should address the decentralized system of the company. Each division should
work together for one goal - the company’s goal. Though, they permit out
sourcing but it is not a solution for this case. If Display Technologies Plc can
produce materials for lower price, it means more possible for Heidelberg, through
ECD as its team player, to do it.
Therefore, Mr. Fettinger needs to advise Heidelberg and ECD to produce
materials with lower price or ISD will increase the X73 system market price.

3. Can a system be designed to motivate each of Zumwald’s division managing

directors to take actions that are not only in the interest of their division but in the
best interest of Zumwald? Explain.

The system should be designed to motivate each of Zumwald’s division

managing directors to take actions that are not only in the interest of their
division but in the best interest of Zumwald. Since every division is working for the
company, its every action should be aligned to company’s goal in general. The
system should be unifying every individual. It should create a culture that gives
opportunity and responsibility to everyone especially to the managers from every
division to fortify the company. Let’s always bear in mind that the success and
failure of all groups always defines by its every element.

PROFIT PLANNING

CASE 9-30 EARRINGS UNLIMITED

Master Budget with Supporting Schedules

SALES BUDGET

April May June Quarter

Budgeted unit sales
65,000 100,000 50,000 215,000
Selling price per unit $10 $10 $10 $10
Total Sales $650,000 $1,000,000 $500,000 $2,150,000
SCHEDULE OF EXPECTED CASH COLLECTIONS:

April May June Quarter

February sales (10%) $ 26,000 $26,000
March sales (70%) next $ 40,000
(10%) 280,000 320,000
April sales $ 65,000
130,000 455,000 650,000
May sales
200,000 700,000 900,000
June sales
100,000 100,000
Total Cash Collections $436,000 $ 695,000 $ 865,000 $1,996,000

MERCHANDISE PURCHASES BUDGET:

April May June Quarter

Budgeted unit sales
65,000 100,000 50,000 215,000
Add desired ending
inventory
(40% of the next month's
unit) 40,000 20,000 12,000 72,000
Total needs
105,000 120,000 62,000 287,000
Less beginning inventory
26,000 40,000 20,000 86,000
Required purchases
79,000 80,000 42,000 201,000
Cost of purchases @ $4 per $316,000 $320,000 $168,000 $804,000
unit

BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES:

April May June Quarter

Accounts payable $100,000 $100,000
April purchases 158,000 $158,000 316,000
May purchases 160,000 $160,000 320,000
June purchases 84,000 84,000
Total cash payments $258,000 $318,000 $244,000 $820,000
EARRINGS UNLIMITED CASH BUDGET FOR THE THREE MONTHS ENDING JUNE 30

April May June Quarter

Cash balance $ 74,000 $ 50,000 $ 50,000 $ 74,000
Add collections from 436,000 695,000 865,000 1,996,000
customers
Total cash available $510,000 $745,000 $915,000 $2,070,000

Less Disbursements
Merchandise purchases $258,000 $318,000 $244,000 $ 820,000
Advertising 200,000 200,000 200,000 600,000
Rent 18,000 18,000 18,000 54,000
Salaries 106,000 106,000 106,000 318,000
Commissions 26,000 40,000 20,000 86,000
Utilities 7,000 7,000 7,000 21,000
Equipment purchases 16,000 40,000 56,000
Dividends paid 15,000 0 0 15,000
Total Disbursements $630,000 $ 705,000 $ 635,000 $1,970,000

Excess (deficiency) of
receipts
over disbursements $(120,000) $ 40,000 $ 280,000 $100,000
Financing:
Borrowings $ 170,000 $ 10,000 0 $ 180,000
Repayments $(180,000) (180,000)
Interest (5,300) (5,300)
Total financing $ 170,000 $ 10,000 $(185,300) $ (5,300)

Cash balance, ending $ 50,000 $ 50,000 $ 94,700 $ 94,700

EARRINGS UNLIMITED BUDGETED INCOME STATEMENT FOR THE THREE MONTHS ENDED
JUNE 30

Sales $2,150,000
Variable expenses:
Cost of goods sold $ 860,000
Commissions $ 86,000 $ 946,000
Contribution Margin $1,204,000
Fixed expenses:
Advertising $ 600,000
Rent $54,000
Salaries $318,000
Utilities $ 21,000
Insurance $ 9,000
Depreciation $42,000 $1,044,000
 Net operating income $160,000
Interest expense $(5,300)
Net income $154,700

EARRINGS UNLIMITED BUDGETED BALANCE SHEET JUNE 30

Assets:

Cash $94,700
Accounts receivable (see below) $500,000
Inventory $48,000
Prepaid insurance $12,000
Property and equipment, net $964,000
Total assets $1,618,700

Liabilities and Stockholders' Equity

Accounts payable, purchases $ 84,000

Dividends payable $ 15,000
Capital stock $ 800,000
Retained earnings (see below) $ 719,700
Total liabilities and stockholders' equity $ 1,618,700

Accounts receivable at June 30:

May sales x 10% $ 100,000
June sales x 80% $ 400,000
Total $ 500,000

Retained earnings at June 30:

Balance, March 31 $ 580,000
Add net income $ 154,700
Total $ 734,700
Less dividends declared $ 15,000
Balance, June 30 $ 719,700
FLEXIBLE BUDGET AND PERFORMANCE ANALYSIS case 14-34 top quality stores inc

CASE 10-28 BOYNE UNIVERSITY

Critiquing a Report; preparing Spending Variances

1. Boyne University Motor Pool Flexible Budget Cost Control Report that shows
spending variances For the Month Ended March 31

Boyne University Motor Pool

Flexible Budget Cost Control Report that shows spending variances
For the Month Ended March 31
Cost Monthly March Variances Flexible
Budget (1/12 Actual Budget
of Annual
Budget)
Miles 50,000 63,000
Autos 20 21
Gasoline $0.15 per $7,500 $9,350 $1,850 $9,450
mile
Oil, minor $0.04 per 2,000 2,360 360 $2,520
repairs, parts mile
Outside $75 1,500 1,420 80 $1,575
repairs
Insurance $100 2,000 2,120 120 $2,100
Salaries and $7,540 7,540 7,540 0 $7,540
benefits
Vehicle $250 5,000 5,250 250 $5,250
depreciation
Total $7965.19 25,540 $28,040 $2,500 $2,8435

2. What are the deficiencies in the original cost control report? How does the report
that you prepared in part (1) above overcome these deficiencies.

The Deficiencies in the original cost control report are the differences on the
distance and number of vehicles after comparing the monthly budget cost control
report against the actual one. The new report that I prepared above overcame
these deficiencies because it is already based on the actual factors.