Sheet1
Precision Design Pty Ltd
Variance Report for the year ending 30 June 2019
flexible budget
budget flexible budget actual variance
Hours charged 33,600 29,507 (4,093)
Income Statement
Sales revenue 5,712 4,997 (715)
Direct Labour (3,102) (2,750) 352
Contribution margin 2,610 2,247 (363)
Non-variable expenses
indirect labour (1,064) (1,060) 4
Information technology (75) (72) 3
rent (510) (510) 0
utilities (25) (23) 2
training (65) (64) 1
travel & accomodation (336) (335) 1
repair & maintenance (35) (33) 2
staff amenities (80) (76) 4
depreciation (203) (198) 5
general office expenses (23) (21) 2
operating profit 194 (145) (339)
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Case study
Assessment 2 “Accounting, Behaviour and Organisations”
1
RMIT Classification: Trusted
Precision Design Pty Ltd (‘PD’) is an innovative industrial design firm providing realistic 3D
digital imaging using the latest drafting technology. Emma Janson founded the firm in 1981.
She has seen it grow gradually over the last two decades. It now employs 18 designers and
10 support staff.
Ten years ago, Emma decided that she was spending too much time managing the firm and
not enough time designing and interacting with clients. She appointed Rashmi Rajapaksi as
the general manager of PD. Rashmi’s management style focuses on control. She believes
that a business organisation is like a finely tuned machine. Everything must be planned and
then executed as planned. There should be no surprises.
Design and drafting technology is advancing quickly. Emma and other senior designers have
discussed the feasibility of adopting a ‘paper free’ policy and introducing 3D printing, but
Emma has been reluctant to make the move. 3D printing would enable PD to produce
ealistic and timely 3D models, which will in turn, facilitate more refined designs through
more effective consultations and collaboration with clients. On occasions, designers have
conducted design reviews and provided feedback online rather than on paper, but minor
glitches in the hardware tend to frustrate their efforts. The move would require significant
hardware and software upgrades, as well as more technical support. Allocating the required
esources may require reduced spending in other areas such as marketing, training, etc.
Emma knows that in the long run, em
acing these emerging technologies is essential for
operational efficiency and service quality. It is just a matter of finding the funds required. She
intends to make a move within the next year.
Rashmi has fine-tuned the budgeting process over the last 7 years. Resources are allocated
where they are needed and spending is tightly controlled. If spending on a particular item
comes in over budget, the person responsible is reprimanded and their future spending is
carefully scrutinised. If spending is under budget, then the allocation is in excess of what is
needed and is revised downward for subsequent periods. Rashmi finalises the budget for the
cu
ent year immediately after receiving the financial reports for the cu
ent year. Rashmi
uses budget information and variances for employee performance evaluation and bonus
allocation.
Cora Mwangi, is responsible for training and IT. Cora planned this year’s spending
meticulously. But she is having trouble executing her plans. Seven designers were
scheduled to receive advanced training on the latest 3D design software in May 2019. Two
candidates, and PD’s most productive designers, Mary and Martha went on maternity leave
Emily Khean
Emily Khean
Emily Khean
Case study
Assessment 2 “Accounting, Behaviour and Organisations”
2
RMIT Classification: Trusted
efore the training commenced. Another candidate, Sussan needed the new software for a
project that was due in March 2019, so she taught herself how to use the new software by
working through the manual. Sussan has since completed four projects using the software.
She now has a busy workload and does not want to attend the training in May.
Sunday, 30 June 2019 is the end of the financial year and is fast approaching. Cora is
wo
ied that her spending on training may end up being 30% below budget. She was having
lunch with one of the software sales reps recently, when he mentioned that he will be
attending a seminar on negotiating skills and contract law. The conference will be held in
June 2019 at a luxury resort on Bintan Island. Cora asked Susan if she would like to attend.
Sussan was delighted. Cora also acquired a new software package for customer relations
management (CRM) and stocked up on paper and ink for the printers. She is now on budget
and is more confident about her performance appraisal with Rashmi in June.
Another senior designer, Zhang Wei, has just returned from 3 months sick leave. Business
was slow during the second half of 2018, but demand for PD’s services has recovered in
ecent months. Emma has projects on the books but does not have enough designers to
complete and deliver the work on time. She may need to outsource some of the work, but
the outsourcing may take some time to a
ange.
Emily Khean
Emily Khean
Case study
Assessment 2 “Accounting, Behaviour and Organisations”
3
RMIT Classification: Trusted
Precision Design Pty Ltd
Variance Report for the year ending 30 June 2019
budget actual variance
Hours charged 33,600 29,507 (4,093)
Income Statement
Sales revenue 5,712 4, XXXXXXXXXX)
Direct Labour (3,102) (2, XXXXXXXXXX
Contribution margin 2,610 2, XXXXXXXXXX)
Non-variable expenses
indirect labour (1,064) (1,060) 4
Information technology XXXXXXXXXX
rent XXXXXXXXXX
utilities XXXXXXXXXX
training XXXXXXXXXX
travel & accomodation XXXXXXXXXX
repair & maintenance XXXXXXXXXX
staff amenities XXXXXXXXXX
depreciation XXXXXXXXXX
general office expenses XXXXXXXXXX
operating profit XXXXXXXXXX)
Case study
Assessment 2 “Accounting, Behaviour and Organisations”
4
RMIT Classification: Trusted
Tasks
1. Prepare a flexible budget for Precision Design Pty Ltd (PD) for the year ending 30
June 2019. What does flexible budget figures tell us about PD’s performance? (Copy
and paste your table from excel). Provide a thorough analysis with examples from the
case.
2. Calculate the sales price variance. What does this variance mean for Precision?
What are the possible drivers of this variance?
3. Budgeting serves three purposes in a typical business organisation: planning,
performance evaluation, and delegation of decision rights. To what extent does the
udget at Precision Design serve each of these purposes? Discuss.
4. Rashmi is beginning to suspect that her management style, particularly her approach
to budgeting and performance measurement may not be optimum. She seeks your
help. What would you recommend?
Tasks