EXCERCISE $01.$ Flexible Budget Analysis for Delta Manufacturing

Background: Delta Manufacturing produces electronic components. The company prepares flexible budgets to adjust its operations according to various production levels. Management uses these budgets to monitor performance and make operational decisions.

Data Provided: Delta Manufacturing has predicted its costs at different levels of production for the upcoming quarter. The costs include direct materials, direct labor, and variable overhead.

Costs at $100\%$ Activity Level $(20,000$ units$)$:

$$ Direct Materials: $$4\mathrm{.}00$ per unit

$$ Direct Labor: $$3\mathrm{.}00$ per unit

$$ Variable Overhead: $$2\mathrm{.}00$ per unit

$$ Fixed Overhead Costs: $$50,000$ per quarter

Required:

$1.$ Prepare a Flexible Budget:

o Compute the budgeted costs for production levels of $60\%,75\%,90\%,$ and $100\%.$ o Show how each cost category $($materials$,$ labor, and variable overhead$)$ adjusts with changes in the production level.

$2.$ Actual Performance Review:

o Assume that Delta Manufacturing operated at $85\%$ capacity during the last quarter and incurred the following actual costs:

$$ Direct Materials: $$68,000$

$$ Direct Labor: $$52,000$

$$ Variable Overhead: $$36,000$

$$ Fixed Overhead: $$50,000$

o Prepare a flexible budget for $85\%$ capacity and compare it to actual costs. Identify variances and discuss possible reasons for each variance.

$3.$ Management Discussion:

o Based on the variances identified, provide recommendations for areas where management should focus to improve cost control and operational efficiency in the next quarter.

EXCERCISE $02$: Analyze and Evaluate the Company$$s Strategies and Performance Based on the data and observations from the company's budget and performance reports given in class, your task is to analyze the strategies implemented and evaluate their effectiveness. Your analysis should explore the impact of these strategies, including both positive outcomes and potential risks.

Use the structure provided below to identify key strategies, assess their effectiveness, and make recommendations for optimization. Instructions for the Analysis

$1.$ Identify the Key Strategies Implemented by the Company, or weaknesses

Use the performance data to identify the strategies the company has applied, such as:

o Eased credit terms to drive sales volume

o Improved product quality through increased COGS per unit o Increased sales commissions to incentivize the sales team

o Higher advertising spending to promote the product o Increased salaries to retain employees and reward high performance

$2.$ Assess the Impact of Each Strategy For each strategy identified, analyze both positive and negative impacts based on the variances provided. Use the following structure:

$$ Strategy: $($Explain the company$$s approach, e$.$g$.,$ increasing product quality by raising COGS per unit$)$

$$ Impact:

o Positive Impact: $($How did the strategy contribute to the favorable outcomes? Consider sales volume, revenue, and customer satisfaction.$)$

o Negative Impact: $($What risks or unfavorable outcomes were associated with this strategy, such as increased costs or higher bad debt?$)$

$$ Effectiveness: $($Was the strategy successful in achieving its goal? Provide reasoning based on the data, such as favorable or unfavorable variances.$)$

$3.$ Evaluate the Company$$s Overall Performance Using your analysis of each strategy, provide a comprehensive evaluation of the company$$s performance:

$$ Sales Volume: How did the strategies $($e$.$g$.,$ credit terms, commissions$)$ contribute to the favorable volume variance of $2,370$ units?

$$ Selling Price: How did the improvement in product quality justify the higher selling price $(20\mathrm{.}2$ USD vs$.20$ USD$)?$

$$ Profitability: Although revenues increased, how did increased costs $($COGS$,$ commissions, salaries, advertising$)$ impact profit margins? $4.$ Make Recommendations for Optimization Based on your analysis, suggest ways to optimize the company$$s strategies to maintain growth while managing risks. Use the following structure for each recommendation:

$$ Monitor and Adjust Credit Terms: $($How can the company continue to boost sales while minimizing bad debts?$)$

$$ Optimize Advertising Spending: $($What metrics should the company use to ensure advertising ROI is positive?$)$ Align Salary Increases with Performance Targets: $($How can the company ensure salary increases remain sustainable?$)$

$$ Control COGS to Maintain Margins: $($How can the company balance product quality with profitability?$)$