BTC case analysis
Budgeting and Performance Evaluation at the Berkshire Toy Company
Loyola, Joy D.
Palma, Prince Kelvin T.
BSM42
Executive Summary In 1974, Berkshire Toy Company (BTC) was founded by Franklin Berkshire, Janet McKinley’s farther. Janet was soon became the CEO of the company when her father retires on 1993. After two years, BTC was acquired by Quality Products Corporation, a manufacturer of different products, for a common stock of $23.2 million. The preliminary statement of divisional operating income for the year ended June 30, 1998 presented the actual values generated together with the master (static) budget and master budget variances for the period. The company obtained higher Total Revenue than their budget but it turned out to an Operating Loss near a million dollars. This paper aims to study the budgets from actual results, and to compute the budget variances and to analyze its causes. After that, the company performance will be evaluated to recommend alternative solutions for improvement.
Introduction As a division of Quality Products Corporation, Berkshire Toy Company produces the Berkshire Bear, a fifteen-inch teddy bear which are fully jointed, washable, and dressed in various accessories. It is sold to customers like children and adult collectors with unconditional lifetime guarantee. The company is organized into three departments: purchasing (managed by David Hall), production (managed by Bill Willford) and marketing (managed by Rita Smith). An incentive compensation plan was implemented in 1997, intended to enhance the participation and teamwork of the managers. It provides bonuses for each department heads in the following conditions:
Purchasing: 20% of net materials price variance, assuming favourable
Marketing: 10% of excess variance of net revenue, assuming favourable
Production: 3% of net variance in material, labour, variable overhead, labour rate variance, and the variable and
Loyola, Joy D.
Palma, Prince Kelvin T.
BSM42
Executive Summary In 1974, Berkshire Toy Company (BTC) was founded by Franklin Berkshire, Janet McKinley’s farther. Janet was soon became the CEO of the company when her father retires on 1993. After two years, BTC was acquired by Quality Products Corporation, a manufacturer of different products, for a common stock of $23.2 million. The preliminary statement of divisional operating income for the year ended June 30, 1998 presented the actual values generated together with the master (static) budget and master budget variances for the period. The company obtained higher Total Revenue than their budget but it turned out to an Operating Loss near a million dollars. This paper aims to study the budgets from actual results, and to compute the budget variances and to analyze its causes. After that, the company performance will be evaluated to recommend alternative solutions for improvement.
Introduction As a division of Quality Products Corporation, Berkshire Toy Company produces the Berkshire Bear, a fifteen-inch teddy bear which are fully jointed, washable, and dressed in various accessories. It is sold to customers like children and adult collectors with unconditional lifetime guarantee. The company is organized into three departments: purchasing (managed by David Hall), production (managed by Bill Willford) and marketing (managed by Rita Smith). An incentive compensation plan was implemented in 1997, intended to enhance the participation and teamwork of the managers. It provides bonuses for each department heads in the following conditions:
Purchasing: 20% of net materials price variance, assuming favourable
Marketing: 10% of excess variance of net revenue, assuming favourable
Production: 3% of net variance in material, labour, variable overhead, labour rate variance, and the variable and