Berkshire Toy Company
For question 1, you may use the worksheet on CANVAS.
Please note that this assignment is graded based on effort.
1. (a) Using the information in the case, prepare a flexible budget 1 for the Berkshire Toy Company using the actual product mix (174,965 units from retail and catalog sales, 105,429 units from internet sales, and 45,162 units from wholesale).
(Note: Prepare a flexible budget based on actual units sold multiplied by the static budget prices. Use a budgeted price of $42 for internet sales.)
(b) Using the information in the case, prepare a flexible budget 2 for the Berkshire Toy Company using the budgeted product mix (Note: According to the budget, 85% of the total sales volume come from retail and catalog sales, 0% from internet sales, and 15% from wholesale (refer to the table at the bottom of page 289)).
(c) Conduct the variance analysis by calculating the differences between (1) actual and flexible budget 1, (2) flexible 1 and flexible budget 2, (3) flexible budget 2 and static budget. List the factor(s) that drives the differences identified in (1), (2), and (3).
(d) Using the information in the case, subdivide the flexible budget variance (the difference between actual and flexible budget 1) into the appropriate price (rate or spending) and efficiency (usage or quantity) variances for materials, labor, and variable overhead.
2. Compute the bonuses earned in fiscal 1998, if any, by David Hall of the purchasing department, Rita Smith of the marketing department, and Bill Wilford of the production department.
3. Pick one of the managers (Rita Smith, David Hall, or Bill Wilford), and discuss likely explanation(s) behind the observed variances that form the basis of a manager’s compensation. Please use the information provided in the case. (word limit: 300 words)
4. What do you think about the current incentive compensation plan? How would you improve the incentive plan? And why? (word limit: 300 words)
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