After reviewing financial results for 2013, Chicago Cannery’s president sent the following e-mail to his CFO and controller, Willie Logan.
I’m disappointed in the financial results for the year just completed. As you know, profits were $ 2 million below budget. In comparing the actual results to the budget, I note that the cost of natural gas exceeded budget by almost $ 1.3 million, and that cost alone accounts for 65 percent of the profit deficiency. This is the second year in a row that energy costs have dramatically reduced profits. I am calling a meeting on Tuesday to review our financial results, and I would like you to offer a presentation on the following topics:
1. Why our estimates of energy costs have been dramatically below actual costs.
2. What actions you intend to take to improve our ability to estimate these costs.
3. What actions the company could take to better manage these costs.
As the most recent hire in the Financial Department of Chicago Cannery, Logan has asked you for help.
a. What suggestions will you give Logan to improve the estimates of energy costs for future budgeting cycles?
b. What suggestions will you give Logan to improve the management of energy costs in the future?