Pelican Instruments Case Summary

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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.

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
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Although the reduction in selling price by $10 resulted in over a $1.4 million loss, he will leverage on the fact that thanks to his lower price, more units were sold. This in turn means that the product increased its market penetration from 10% budgeted to 16% actual due to his price reduction strategy. This resulted in just under $2.6 million gain due to market share alone. He can also validate his lower price by gaining almost $700K due to volume increase. His low price strategy is therefore beneficial to his unit, and therefore he deserves the share.
Marketing Manager
The EM Marketing Manager may claim that he has increased market share from 10% to 16%, and thus his department is responsible for at least a chunk of the $2.6 million in profit gain. He may also argue that his department successfully partook in the profit gain yet still managed to cut departmental costs by $416K.

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