Scotty Graces goal has always been to design the finest putters for the best golfers in the

Question:

Scotty Grace’s goal has always been to design the finest putters for the best golfers in the world. For years, Scotty toiled in isolation, crafting putters using a table-top mill in his mother-in-law’s garage. All of that changed in 1994, however, when a famous professional golfer used one of Scotty’s creations to win the PGA Championship. Scotty’s putters became an “overnight success,” and Scotty received several thousand orders in the next two weeks for the putter that the PGA professional had used.

Scotty’s latest invention is the Amazing Grace, a triangular-shaped mallet-style putter that has the highest moment of inertia of any putter ever made. The putter, which is milled from high-tech aircraft aluminum, has a substantial amount of mass located several inches behind the putter face, giving it a deep center of gravity. This deep center of gravity makes the Amazing Grace very stable and forgiving, which, in turn, should help the golfer make more putts!

At the beginning of the year, Scotty’s management team developed the following master budget for the Amazing Grace (the master budget was based on last year’s actual results):

Scotty Graceâ€™s goal has always been to design the finest

Upon seeing these figures, Scotty wondered if there was a way to increase his company’s profit from the Amazing Grace putter. Scotty had two ideas. The first was to reduce the selling price to $245. He believed that the $35 reduction in the selling price would substantially increase putter sales.

Scotty’s second idea was to rent a new milling machine for the coming year. The rental would cost Scotty $50,000 for the year, but he hoped that the machine would reduce both the materials waste and the labor time associated with making each putter.

Moreover, since each finished putter head weighed only 350 grams, Scotty wanted to find a way to reduce the 650 grams (1,000 2 350) of high-tech aircraft aluminum and other materials (tungsten) that were wasted in the production process. He also reasoned that reducing material waste would reduce the labor time needed to fabricate each putter.

Scotty implemented both of his ideas, and at the end of the year, the actual results were as follows:

Required:

a. What was the master budget profit for Scotty’s Amazing Grace putter for the most recent year?

b. What was Scotty’s actual profit from his Amazing Grace putter for the most recent year?

c. Prepare Scotty’s flexible budget for his Amazing Grace putter for the most recent year.

d. Did reducing the selling price turn out to be a good idea? Which variances help you assess the quality of this decision? By how much did Scotty’s profit increase or decrease as a result of lowering the selling price?

e. Did renting the new milling machine turn out to be a good idea? Which variances help you assess the quality of this decision? By how much did Scotty’s profit increase or decrease as a result of renting the new milling machine?

f. Prepare a brief paragraph or two discussing why Scotty should care about the variances you calculated and how they might be used to improve Scotty’s decision making.