Suppose that you are the CEO of Fly-a-Kite Company, which manufactures a variety of kite kits....

 

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Suppose that you are the CEO of Fly-a-Kite Company, which manufactures a variety of kite kits. Lily, the assistant accountant of your Company, has prepared a variance analysis report for product costs and sales performance for this financial year, so that you can identify areas in need of improved cost control. The sales revenue this year was $760,000. The growth rate was 20%. Fly-a-Kite Company charges a premium for its products due to its positive brand recognition. Lily has calculated price and efficiency variances for materials as followings: Material price variance: $65,000U; Material efficiency variance: $160,000F. Lily provides the following two recommendations: • Efficiency variance is large and favourable, and thus, production managers have done a good job in controlling costs; Because the sales growth was 20%, the sales manager has done a good job in generating sales and thus should be given a bonus. Required: Do you agree with Lily's recommendations? Why or why not? If not, what are your recommendations to improve the KPI system? Be concise and provide specific examples if necessary. Two short paragraphs are sufficient. Suggested time allocation: no more than 20 minutes. Suppose that you are the CEO of Fly-a-Kite Company, which manufactures a variety of kite kits. Lily, the assistant accountant of your Company, has prepared a variance analysis report for product costs and sales performance for this financial year, so that you can identify areas in need of improved cost control. The sales revenue this year was $760,000. The growth rate was 20%. Fly-a-Kite Company charges a premium for its products due to its positive brand recognition. Lily has calculated price and efficiency variances for materials as followings: Material price variance: $65,000U; Material efficiency variance: $160,000F. Lily provides the following two recommendations: • Efficiency variance is large and favourable, and thus, production managers have done a good job in controlling costs; Because the sales growth was 20%, the sales manager has done a good job in generating sales and thus should be given a bonus. Required: Do you agree with Lily's recommendations? Why or why not? If not, what are your recommendations to improve the KPI system? Be concise and provide specific examples if necessary. Two short paragraphs are sufficient. Suggested time allocation: no more than 20 minutes.

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Answer The given case is about the variance analysis It is considered one of the techniques of cost accounting that would involve the measurement of t... View the full answer