You are the manager of the marketing department of a companythat imports products and wholesales them to retailers. You have astaff of six professionals and are responsible for an annual budgetof approximately $2M dollars. You report to the Senior VP of Salesand Marketing. Because of your prior background in Finance the CEOof the company has asked for your help in providing an analysis forthe past two years of budgeted dollars to actual results. Your bossis concerned about your past and the current year results and hasrequested that you provide to her an analysis of the prior twoyears and a projection of where you will land at the end of thecurrent year. She also wants to see a preliminary budget for yourdepartment for next year. Company Income Statements are providedfor the prior two years that show the budgeted dollars and actualresults for your company by department, and the current year budgetwith the first six months of actual operational results areavailable. A breakdown of your departmental budget is provided forthe prior two years that show the budgeted dollars and actualresults by budget code. The current year budget with the first sixmonths of actual results is also available.
Analysis Questions to answer for the CEO for Year Two.
In year two, one of the companyâs largest suppliers had qualityissues with their product and one of their bigger clients wentbankrupt, causing sales revenue to drop significantly. List threeareas that did a good job of controlling cost to off-set therevenue decrease and some plausible reasons as to how or why theseareas were successful.
Why would it seem like the I/T department did not decrease theirspend in line with the other departments?
Was year one or year two a better over-all year for the companyand explain your answer?
Income Statement
YEAR ONE
Budgeted
Actual
VARIANCE + underbudget (-) over budget
Sales Revenue
$ 21,000,000
$ 22,500,000
$ (1,500,000)
Cost of Goods Sold
12,600,000
13,950,000
(1,350,000)
Gross Profit
8,400,000
8,550,000
(150,000)
SG&A Expense by Department (incldingsalaries)
Sales
2,310,000
2,410,000
(100,000)
Marketing
1,933,940
2,123,885
(189,945)
I/T
315,000
318,000
(3,000)
Warehouse & Shipping
1,050,000
1,275,000
(225,000)
Corporate Executives
950,000
1,250,000
(300,000)
TOTAL SG&A Expense
6,558,940
7,376,885
(817,945)
Net Operating Profit
1,841,060
1,173,115
667,945
Profit Margin
9%
5%
Income Statement
YEAR TWO
Budgeted
Actual
VARIANCE + underbudget (-) over budget
Sales Revenue
$ 23,250,000
$ 20,450,000
2,800,000
Cost of Goods Sold
14,298,750
12,679,000
1,619,750
Gross Profit
8,951,250
7,771,000
1,180,250
SG&A Expense by Department (incldingsalaries)
Sales
2,441,250
2,351,750
89,500
Marketing
1,963,159
1,883,619
79,540
I/T
327,600
325,000
2,600
Warehouse & Shipping
1,278,750
1,022,500
256,250
Corporate Executives
997,500
975,500
22,000
TOTAL SG&A Expense
7,008,259
6,558,369
449,890
Net Operating Profit
1,942,991
1,212,631
730,360
Profit Margin
8%
16%
Income Statement
CURRENT YEAR JAN - JUN
Full Year Budget
Jan - Jun Actual Results
Sales Revenue
$ 23,000,000
$ 12,250,000
Cost of Goods Sold
14,490,000
7,533,750
Gross Profit
8,510,000
4,716,250
SG&A Expense by Department (incldingsalaries)
Sales
2,300,000
1,286,250
Marketing
2,322,390
1,329,236
I/T
330,000
168,300
Warehouse & Shipping
1,150,000
551,250
Corporate Executives
1,027,425
436,656
TOTAL SG&A Expense
7,129,815
3,771,692
Net Operating Profit
1,380,185
944,558
Profit Margin
6%
8%
ACTUAL RESULTS
Current Year Budget
Current Year Actuals
SALARIES
YEAR ONE
VARIANCE + underbudget (-) over budget
YEAR TWO
VARIANCE + underbudget (-) over budget
Jan - Dec 20xx
January - June
Marketing Manager (You)
120,000
123,500
125,000
57,250
Sr. Market Analyst
95,000
98,000
102,000
46,000
Sr. Market Analyst
80,000
85,000
87,000
43,000
Advertising Buyer
68,000
72,000
74,500
35,000
Creative Writer (1)
56,000
63,000
65,500
33,200
Graphic Designer (2)
23,500
56,000
57,500
21,200
Administrative Assistant (3)
45,000
48,000
49,250
26,500
TOTAL SALARIES
487,500
54,500
545,500
(15,470)
560,750
262,150
Salary Burden
131,625
14,715
147,285
(4,177)
154,206
72,091
Head Count Overhead
67,500
8,100
79,800
-
81,900
39,000
Salary Burden is calculated at 27% of salaries in year 1 andyear 2 - increases to 27.5% in current operating year and will be28% the budget year
Salary Burden includes all local, state and federal taxes;company portion of medical and life insurance; and company match of401K plan
Head Count Overhead is the allocation of the company's fixedcost to each department on a monthly basis.
it is calculated by the number of employees you have each monthx $900 in year 1, $950 in year 2 and $975 in current operatingyear.
The allocation will be held at $975 for the budget year
Bonuses earned are included in the actual and budgetedsalaries.
Bonus % Paid Out
% Budgeted
% to Budget
Bonuses earned are in the same year they are awarded, paid outon the last check of the current operating year
Year 1
Year 2
Current Year
Budget Year
You can earn up to 15% of your base salary each year
15.0%
11.0%
12.5%
12.5%
The Sr. Market Analyst can earn from 5% to 8% of their basesalary
8.0%
6.0%
7.5%
7.5%
The Ad buyer, creative writer and graphic designer can earn 3%to 5% of their base salary
5.0%
3.5%
4.5%
4.5%
The administrative assistant is on a quarterly bonuses plan andearns 1.5% to 3% of their quarterly salary
3.0%
3.0%
3.0%
3.0%
ALL BONUSUS ARE PRO-RATED BASED ON THE NUMBER OF MONTHSEMPLOYEED FOR THE YEAR
(1) Creative Writer was hired in September of year one
(2) Graphic Designer was hired in July of year one and quit inApril of current operating year
(3) Your admin. assistant informed you that she will be retiringat the end of the year after 25 years of service to the company
ACTUAL RESULTS
Current Year Budget
Current Year Actuals
YEAR ONE
VARIANCE + underbudget (-) over budget
YEAR TWO
VARIANCE + underbudget (-) over budget
Jan - Dec 20xx
January - June
Radio Ad Buys
731,250
(101,250)
664,625
32,875
805,000
490,000
Newspaper Ad Buys
450,000
(135,000)
306,750
42,000
460,000
306,250
Mailers and Flyers
82,500
(2,500)
76,000
9,000
83,000
48,500
Conference Pamphlets
72,000
(4,000)
64,750
9,750
76,400
65,000
Postage
43,260
(6,260)
38,706
1,169
44,632
30,645
Travel
23,500
(3,500)
19,500
4,750
32,000
12,000
Professional License
5,000
-
5,500
(500)
5,500
2,500
Office Supplies
8,500
1,500
7,300
2,700
11,500
1,100
Software & License
21,250
(16,250)
7,500
(2,500)
7,500
-
ACTUAL SG&A EXPENSE
1,437,260
(267,260)
1,190,631
99,244
1,525,532
955,995
You are the manager of the marketing department of a companythat imports products and wholesales them to retailers. You have astaff of six professionals and are responsible for an annual budgetof approximately $2M dollars. You report to the Senior VP of Salesand Marketing. Because of your prior background in Finance the CEOof the company has asked for your help in providing an analysis forthe past two years of budgeted dollars to actual results. Your bossis concerned about your past and the current year results and hasrequested that you provide to her an analysis of the prior twoyears and a projection of where you will land at the end of thecurrent year. She also wants to see a preliminary budget for yourdepartment for next year. Company Income Statements are providedfor the prior two years that show the budgeted dollars and actualresults for your company by department, and the current year budgetwith the first six months of actual operational results areavailable. A breakdown of your departmental budget is provided forthe prior two years that show the budgeted dollars and actualresults by budget code. The current year budget with the first sixmonths of actual results is also available.
Analysis Questions to answer for the CEO for Year Two.
In year two, one of the companyâs largest suppliers had qualityissues with their product and one of their bigger clients wentbankrupt, causing sales revenue to drop significantly. List threeareas that did a good job of controlling cost to off-set therevenue decrease and some plausible reasons as to how or why theseareas were successful.
Why would it seem like the I/T department did not decrease theirspend in line with the other departments?
Was year one or year two a better over-all year for the companyand explain your answer?
Income Statement | YEAR ONE | ||
Budgeted | Actual | VARIANCE + underbudget (-) over budget | |
Sales Revenue | $ 21,000,000 | $ 22,500,000 | $ (1,500,000) |
Cost of Goods Sold | 12,600,000 | 13,950,000 | (1,350,000) |
Gross Profit | 8,400,000 | 8,550,000 | (150,000) |
SG&A Expense by Department (incldingsalaries) | |||
Sales | 2,310,000 | 2,410,000 | (100,000) |
Marketing | 1,933,940 | 2,123,885 | (189,945) |
I/T | 315,000 | 318,000 | (3,000) |
Warehouse & Shipping | 1,050,000 | 1,275,000 | (225,000) |
Corporate Executives | 950,000 | 1,250,000 | (300,000) |
TOTAL SG&A Expense | 6,558,940 | 7,376,885 | (817,945) |
Net Operating Profit | 1,841,060 | 1,173,115 | 667,945 |
Profit Margin | 9% | 5% | |
Income Statement | YEAR TWO | ||
Budgeted | Actual | VARIANCE + underbudget (-) over budget | |
Sales Revenue | $ 23,250,000 | $ 20,450,000 | 2,800,000 |
Cost of Goods Sold | 14,298,750 | 12,679,000 | 1,619,750 |
Gross Profit | 8,951,250 | 7,771,000 | 1,180,250 |
SG&A Expense by Department (incldingsalaries) | |||
Sales | 2,441,250 | 2,351,750 | 89,500 |
Marketing | 1,963,159 | 1,883,619 | 79,540 |
I/T | 327,600 | 325,000 | 2,600 |
Warehouse & Shipping | 1,278,750 | 1,022,500 | 256,250 |
Corporate Executives | 997,500 | 975,500 | 22,000 |
TOTAL SG&A Expense | 7,008,259 | 6,558,369 | 449,890 |
Net Operating Profit | 1,942,991 | 1,212,631 | 730,360 |
Profit Margin | 8% | 16% | |
Income Statement | CURRENT YEAR JAN - JUN | ||
Full Year Budget | Jan - Jun Actual Results | ||
Sales Revenue | $ 23,000,000 | $ 12,250,000 | |
Cost of Goods Sold | 14,490,000 | 7,533,750 | |
Gross Profit | 8,510,000 | 4,716,250 | |
SG&A Expense by Department (incldingsalaries) | |||
Sales | 2,300,000 | 1,286,250 | |
Marketing | 2,322,390 | 1,329,236 | |
I/T | 330,000 | 168,300 | |
Warehouse & Shipping | 1,150,000 | 551,250 | |
Corporate Executives | 1,027,425 | 436,656 | |
TOTAL SG&A Expense | 7,129,815 | 3,771,692 | |
Net Operating Profit | 1,380,185 | 944,558 | |
Profit Margin | 6% | 8% | |
ACTUAL RESULTS | Current Year Budget | Current Year Actuals | |||||||
SALARIES | YEAR ONE | VARIANCE + underbudget (-) over budget | YEAR TWO | VARIANCE + underbudget (-) over budget | Jan - Dec 20xx | January - June | |||
Marketing Manager (You) | 120,000 | 123,500 | 125,000 | 57,250 | |||||
Sr. Market Analyst | 95,000 | 98,000 | 102,000 | 46,000 | |||||
Sr. Market Analyst | 80,000 | 85,000 | 87,000 | 43,000 | |||||
Advertising Buyer | 68,000 | 72,000 | 74,500 | 35,000 | |||||
Creative Writer (1) | 56,000 | 63,000 | 65,500 | 33,200 | |||||
Graphic Designer (2) | 23,500 | 56,000 | 57,500 | 21,200 | |||||
Administrative Assistant (3) | 45,000 | 48,000 | 49,250 | 26,500 | |||||
TOTAL SALARIES | 487,500 | 54,500 | 545,500 | (15,470) | 560,750 | 262,150 | |||
Salary Burden | 131,625 | 14,715 | 147,285 | (4,177) | 154,206 | 72,091 | |||
Head Count Overhead | 67,500 | 8,100 | 79,800 | - | 81,900 | 39,000 | |||
Salary Burden is calculated at 27% of salaries in year 1 andyear 2 - increases to 27.5% in current operating year and will be28% the budget year | |||||||||
Salary Burden includes all local, state and federal taxes;company portion of medical and life insurance; and company match of401K plan | |||||||||
Head Count Overhead is the allocation of the company's fixedcost to each department on a monthly basis. | |||||||||
it is calculated by the number of employees you have each monthx $900 in year 1, $950 in year 2 and $975 in current operatingyear. | |||||||||
The allocation will be held at $975 for the budget year | |||||||||
Bonuses earned are included in the actual and budgetedsalaries. | Bonus % Paid Out | % Budgeted | % to Budget | ||||||
Bonuses earned are in the same year they are awarded, paid outon the last check of the current operating year | Year 1 | Year 2 | Current Year | Budget Year | |||||
You can earn up to 15% of your base salary each year | 15.0% | 11.0% | 12.5% | 12.5% | |||||
The Sr. Market Analyst can earn from 5% to 8% of their basesalary | 8.0% | 6.0% | 7.5% | 7.5% | |||||
The Ad buyer, creative writer and graphic designer can earn 3%to 5% of their base salary | 5.0% | 3.5% | 4.5% | 4.5% | |||||
The administrative assistant is on a quarterly bonuses plan andearns 1.5% to 3% of their quarterly salary | 3.0% | 3.0% | 3.0% | 3.0% | |||||
ALL BONUSUS ARE PRO-RATED BASED ON THE NUMBER OF MONTHSEMPLOYEED FOR THE YEAR | |||||||||
(1) Creative Writer was hired in September of year one | |||||||||
(2) Graphic Designer was hired in July of year one and quit inApril of current operating year | |||||||||
(3) Your admin. assistant informed you that she will be retiringat the end of the year after 25 years of service to the company | |||||||||
ACTUAL RESULTS | Current Year Budget | Current Year Actuals | ||||
YEAR ONE | VARIANCE + underbudget (-) over budget | YEAR TWO | VARIANCE + underbudget (-) over budget | Jan - Dec 20xx | January - June | |
Radio Ad Buys | 731,250 | (101,250) | 664,625 | 32,875 | 805,000 | 490,000 |
Newspaper Ad Buys | 450,000 | (135,000) | 306,750 | 42,000 | 460,000 | 306,250 |
Mailers and Flyers | 82,500 | (2,500) | 76,000 | 9,000 | 83,000 | 48,500 |
Conference Pamphlets | 72,000 | (4,000) | 64,750 | 9,750 | 76,400 | 65,000 |
Postage | 43,260 | (6,260) | 38,706 | 1,169 | 44,632 | 30,645 |
Travel | 23,500 | (3,500) | 19,500 | 4,750 | 32,000 | 12,000 |
Professional License | 5,000 | - | 5,500 | (500) | 5,500 | 2,500 |
Office Supplies | 8,500 | 1,500 | 7,300 | 2,700 | 11,500 | 1,100 |
Software & License | 21,250 | (16,250) | 7,500 | (2,500) | 7,500 | - |
ACTUAL SG&A EXPENSE | 1,437,260 | (267,260) | 1,190,631 | 99,244 | 1,525,532 | 955,995 |
Related questions
Overview:
You are the manager of the marketing department of a companythat imports products and wholesales them to retailers. You have astaff of six professionals and are responsible for an annual budgetof approximately $2M dollars. You report to the Senior VP of Salesand Marketing. Because of your prior background in Finance the CEOof the company has asked for your help in providing an analysis forthe past two years of budgeted dollars to actual results. Your bossis concerned about your past and the current year results and hasrequested that you provide to her an analysis of the prior twoyears and a projection of where you will land at the end of thecurrent year. She also wants to see a preliminary budget for yourdepartment for next year.
Company Income Statements are provided for the prior two yearsthat show the budgeted dollars and actual results for your companyby department, and the current year budget with the first sixmonths of actual operational results are available.
A breakdown of your departmental budget is provided for theprior two years that show the budgeted dollars and actual resultsby budget code. The current year budget with the first six monthsof actual results is also available.
The information below, which includes income statements for bothYear One, Year Two, and Current year, are to be used in determiningthe answers to the questions at the end of the post. Additionalinformation about the tables, salaries, and budget tables are to beused as well.
Data:
Income Statement | YEAR ONE | |||||||
Budgeted | Actual | VARIANCE + underbudget (-) over budget | ||||||
Sales Revenue | $ 21,000,000 | $ 22,500,000 | $ (1,500,000) | |||||
Cost of Goods Sold | 12,600,000 | 13,950,000 | (1,350,000) | |||||
Gross Profit | 8,400,000 | 8,550,000 | (150,000) | |||||
SG&A Expense by Department (inclding salaries) | ||||||||
Sales | 2,310,000 | 2,410,000 | (100,000) | |||||
Marketing | 1,933,940 | 2,123,885 | (189,945) | |||||
I/T | 315,000 | 318,000 | (3,000) | |||||
Warehouse & Shipping | 1,050,000 | 1,275,000 | (225,000) | |||||
Corporate Executives | 950,000 | 1,250,000 | (300,000) | |||||
TOTAL SG&A Expense | 6,558,940 | 7,376,885 | (817,945) | |||||
Net Operating Profit | 1,841,060 | 1,173,115 | 667,945 | |||||
Profit Margin | 9% | 5% | ||||||
Income Statement | YEAR TWO | |||||||
Budgeted | Actual | VARIANCE + underbudget (-) over budget | ||||||
Sales Revenue | $ 23,250,000 | $ 20,450,000 | 2,800,000 | |||||
Cost of Goods Sold | 14,298,750 | 12,679,000 | 1,619,750 | |||||
Gross Profit | 8,951,250 | 7,771,000 | 1,180,250 | |||||
SG&A Expense by Department (inclding salaries) | ||||||||
Sales | 2,441,250 | 2,351,750 | 89,500 | |||||
Marketing | 1,963,159 | 1,883,619 | 79,540 | |||||
I/T | 327,600 | 325,000 | 2,600 | |||||
Warehouse & Shipping | 1,278,750 | 1,022,500 | 256,250 | |||||
Corporate Executives | 997,500 | 975,500 | 22,000 | |||||
TOTAL SG&A Expense | 7,008,259 | 6,558,369 | 449,890 | |||||
Net Operating Profit | 1,942,991 | 1,212,631 | 730,360 | |||||
Profit Margin | 8% | 16% | ||||||
Income Statement | CURRENT YEAR JAN - JUN | |||||||
Full Year Budget | Jan - Jun Actual Results | |||||||
Sales Revenue | $ 23,000,000 | $ 12,250,000 | ||||||
Cost of Goods Sold | 14,490,000 | 7,533,750 | ||||||
Gross Profit | 8,510,000 | 4,716,250 | ||||||
SG&A Expense by Department (inclding salaries) | ||||||||
Sales | 2,300,000 | 1,286,250 | ||||||
Marketing | 2,322,390 | 1,329,236 | ||||||
I/T | 330,000 | 168,300 | ||||||
Warehouse & Shipping | 1,150,000 | 551,250 | ||||||
Corporate Executives | 1,027,425 | 436,656 | ||||||
TOTAL SG&A Expense | 7,129,815 | 3,771,692 | ||||||
Net Operating Profit | 1,380,185 | 944,558 | ||||||
Profit Margin | 6% | 8% | ||||||
ACTUAL RESULTS | Current Year Budget | Current Year Actuals | ||||||
SALARIES | YEAR ONE | VARIANCE + underbudget (-) over budget | YEAR TWO | VARIANCE + underbudget (-) over budget | Jan - Dec 20xx | January - June | ||
Marketing Manager (You) | 120,000 | 123,500 | 125,000 | 57,250 | ||||
Sr. Market Analyst | 95,000 | 98,000 | 102,000 | 46,000 | ||||
Sr. Market Analyst | 80,000 | 85,000 | 87,000 | 43,000 | ||||
Advertising Buyer | 68,000 | 72,000 | 74,500 | 35,000 | ||||
Creative Writer (1) | 56,000 | 63,000 | 65,500 | 33,200 | ||||
Graphic Designer (2) | 23,500 | 56,000 | 57,500 | 21,200 | ||||
Administrative Assistant (3) | 45,000 | 48,000 | 49,250 | 26,500 | ||||
TOTAL SALARIES | 487,500 | 54,500 | 545,500 | (15,470) | 560,750 | 262,150 | ||
Salary Burden | 131,625 | 14,715 | 147,285 | (4,177) | 154,206 | 72,091 | ||
Head Count Overhead | 67,500 | 8,100 | 79,800 | - | 81,900 | 39,000 | ||
Salary Burden is calculated at 27% of salaries in year 1 andyear 2 - increases to 27.5% in current operating year and will be28% the budget year
Salary Burden includes all local, state and federal taxes;company portion of medical and life insurance; and company match of401K plan
Head Count Overhead is the allocation of the company's fixedcost to each department on a monthly basis.
it is calculated by the number of employees you have each monthx $900 in year 1, $950 in year 2 and $975 in current operatingyear.
The allocation will be held at $975 for the budget year
Bonuses earned are included in the actual and budgetedsalaries.
Bonuses earned are in the same year they are awarded, paid outon the last check of the current operating year
You can earn up to 15% of your base salary each year
The Sr. Market Analyst can earn from 5% to 8% of their basesalary
The Ad buyer, creative writer and graphic designer can earn 3%to 5% of their base salary
The administrative assistant is on a quarterly bonuses plan andearns 1.5% to 3% of their quarterly salary
ALL BONUSUS ARE PRO-RATED BASED ON THE NUMBER OF MONTHSEMPLOYEED FOR THE YEAR
(1) Creative Writer was hired in September of year one
(2) Graphic Designer was hired in July of year one and quit inApril of current operating year
(3) Your admin. assistant informed you that she will be retiringat the end of the year after 25 years of service to the company
Bonus % Paid Out | % Budgeted | % to Budget | |||||
Year 1 | Year 2 | Current Year | Budget Year | ||||
15.0% | 11.0% | 12.5% | 12.5% | ||||
8.0% | 6.0% | 7.5% | 7.5% | ||||
5.0% | 3.5% | 4.5% | 4.5% | ||||
3.0% | 3.0% | 3.0% | 3.0% | ||||
ACTUAL RESULTS | Current Year Budget | Current Year Actuals | |||||
YEAR ONE | VARIANCE + underbudget (-) over budget | YEAR TWO | VARIANCE + underbudget (-) over budget | Jan - Dec 20xx | January - June | ||
Radio Ad Buys | 731,250 | (101,250) | 664,625 | 32,875 | 805,000 | 490,000 | |
Newspaper Ad Buys | 450,000 | (135,000) | 306,750 | 42,000 | 460,000 | 306,250 | |
Mailers and Flyers | 82,500 | (2,500) | 76,000 | 9,000 | 83,000 | 48,500 | |
Conference Pamphlets | 72,000 | (4,000) | 64,750 | 9,750 | 76,400 | 65,000 | |
Postage | 43,260 | (6,260) | 38,706 | 1,169 | 44,632 | 30,645 | |
Travel | 23,500 | (3,500) | 19,500 | 4,750 | 32,000 | 12,000 | |
Professional License | 5,000 | - | 5,500 | (500) | 5,500 | 2,500 | |
Office Supplies | 8,500 | 1,500 | 7,300 | 2,700 | 11,500 | 1,100 | |
Software & License | 21,250 | (16,250) | 7,500 | (2,500) | 7,500 | - | |
ACTUAL SG&A EXPENSE | 1,437,260 | (267,260) | 1,190,631 | 99,244 | 1,525,532 | 955,995 | |
Questions:
Analysis Questions to answer for the Senior VP of Sales andMarketing.
1.) In year one your department was approximately 10%over-budget. Justify why this occurred.
2.) Your department was over budget two consecutive years inSoftware and Licensing, please provide an explanation.
3.) Explain what you did in year two to hold cost down.
4.) In the current year it looks like you are going to be alittle over $300,000 over budget (15% ). What are your plans to getthis under control? Information for next yearâs budget · Revenue isprojected to be $24,150,000 based on expanding into the West Coast· A regional office is to be opened on the West Coast and the CEOexpects all managers to spend time in the office as well as have afull time marketing employee at the office.
