Pelican Instruments Case Study

INTRODUCTION

Pelican Instruments Inc., an electric meters (EM) and electronic instruments (EI) manufacturer, has experienced above budgeted profits in 2007. Mr. Park, the company’s president is seeking to analyze, which department and which division is outperforming the others. For the purposes of this analysis, we find that using variance analysis is the most relevant method in order to guide Mr. Park to his purpose.

QUESTION 1

Prepare the report that you feel Amy Schulz should present to Mr. Park.

This information is to aid Mr. Park in reaching conclusions about the relative contributions of each department.

Actual Budget Variance Contribution

Sales 17,061.00 16,872.00 189.00 30%

Variable Cost of Sales 6,335.00 5,796.00 539.00 87%

Contribution 10,726.00 11,076.00 (350.00)

Fixed Overhead 3,530.00 3,872.00 (342.00) -55%

Gross Profit 7,196.00 7,204.00 (8) Marketing 1,440.00 1,856.00 (416.00) - 67%

R&D 932.00 1,480.00 (548.00) - 88%

Administration 1,674.00 1,340.00 334.00 54%

Profit before Taxes 3,150.00 2,528.00 622.00

The contribution of the Marketing department fell by 67% and of the R&D department 88%. On the other hand, the contribution of the Administration raised by 54%. This was calculated by dividing the variances of each by the total variance in profit before taxes.

Although useful, we advise Mr. Park to undertake more research on market conditions, efficiency of departments, and