Agm.com Case Analysis

1. What were the factors that caused actual quarterly income to be less than budgeted? What was the quantitative effect of each of these factors?
- In order to find out the factors that caused the less actual quarterly income, we did analysis on variances. Sales variance, production cost variances and overhead variances are calculated as follows:
- Sales Variance Actual
Price($) Budgeted
Price($) Actual
Quantity Sold(Unit) Budgeted
Quantity Sold(Unit) Price
Variance
($) F/U Quantity
Variance
($) F/U
Round 22 25 1100 1000 (3300) U 2500 F
Square 35 34 3900 4000 3900 F (3400) U
Oval 42 45 2250 3000 (6750) U (33750) U
Total 7250 8000 (6150) U (34650) U
- Ss
-

o Figures in bracket are …show more content…

3. Should the target for the bonus be changed to reflect these factors? Explain.
- From our discussion, we concluded that the target for the bonus and the related contract between Marelie and ‘agm.com’ should be changed. The reasons are as follows: o First of all, as mentioned above in the Question 2., it is obvious that Marelie is not responsible for the Verizon’s strike itself. However, since she is responsible for choosing ISP(Internet Service Provider) she should have had a back-up plan for the such emergency situations. For instance, duplexing of server could have prevented the server down for a week. o Secondly, the target for the bonus needs to be adjusted because the company has on-going business and has three more quarters to go. From the calculation done in Exhibit 1., we all know that the loss of the company has occurred because of Oval sales and productions, which is a part that Marelie do not take 100% control of. However because of these factors, the possibility of not meeting the expectation had risen significantly and both the company and Marelie know that now the current target is very challenging to achieve. Having said that, if we do not change the target, it will demotivate Marelie since she knows there is hardly any chance to recover from the 1st quarter’s loss. o Lastly, the actual cost of direct material of the reed for all three types of basket (round, square, oval) is less than the budgeting cost. The decreased in cost