Variance Analysis - Compagnie

In: Business and Management

Submitted By swissboy
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1. What is your evaluation of each of the three businesses? What is your evaluation of the managers who run them?
French Division
Units  ('000)

Profit Plan (Master Budget)  Profit before Interest and Taxes = 1027
Flexible Budget  Profit before Interest and Taxes = 2,002
But Actual Profit earned = 1242 which is 760 less than profit anticipated in flexible budget.

Increase in the profits above the actual budget can be attributed to 20% increase in sales in 2009. Although Jean’s profits were above the actual budget, French Division’s earnings were much lower than what it could have been, had they budgeted for the actual volume of sales that they ended up selling. We can partly attribute this decrease in earnings to the fact that the French division had to sell a certain volume of its products to the Spanish region at a lower contribution margin. Also, Jean had invested a lot of time in managing the expansion into west coast of France, cultivating relationships with vendors and suppliers and working on distribution channels. We agree with Jacques that they would have to wait for some years to receive the full benefits from this investment.

But had Jean incorporated this wait in his budgeted profit plan, he would have been able to achieve a realistic sales objective. Besides, Jean should focus more on sales drop in traditional regions of French Market and maintaining relationships with distributors in the east coast as it was hurting their core business. Focusing on alternate sources of revenues can take a back seat and time saved should be spent on core business.
Spanish Division
Units  ('000)

Profit Plan (Master Budget)  Profit before Interest and Taxes = 5288
Flexible Budget  Profit before Interest and Taxes = 5065
But Actual Profit earned = 4241 Profit Variance comparing to Master Budget (Profit Plan) = (1047) Unfavorable.…...

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