Case Assignment for Management Control System subject at UGM University

1. WHIZ
CALCULATOR
CITRA DEWI WULANSARI
14/374248/PEK/19683
REGULER 36
Case Chapter 4. Management Control
System

2. Whiz Calculator
 Bernard Riesman the new President of Whiz
Calculator, background :
 had been with the company for 5 years
 VP of manufacturing division for 2 years.
 The existing old method of planning &
controlling selling cost was unsatisfactory.

3. Whiz Calculator
 Whiz Calculator Company is into
manufacturing the complete line of electronic
calculators. Their products are sold through
branch offices to wholesalers to retailers or
directly to government or industrial users.
 Whiz Calculator Company is currently
considering the new method of planning and
controlling selling cost.

4. Old Method of Budgeting
 Selling expenses were budgeted on
a “fixed” or “appropriation” basis.
 the accounting department sent
records of actual expenses for the
preceding year and for the current
year -to- date.
 Guided by this record, department
heads drew up & submitted
estimates of the expenses of their
department for the succeeding year.
 Final approval is in Budget
Budget
Committee
Branch
Manager
Selling
Department
Accounting
Department
Marketing
Manager
Sales
Manager
Incremental Budgeting

5. Weaknesses in old method
 Riesman believed, some weaknesses in old
method.
1. Uncertainty the reasonableness of the estimates
budget made by the various department heads.
2. Selling condition often change after the budget was
adopted.
3. But there is no guarantee if there are some increase
in sales budget expense then there would be an
increase in sales volume.

6. Exhibit 1

7. Implementation of New method
 Zero Based Review
 Old budgeted figures were divided into 12 equal
amounts and compared to each month actual results.
 Variable basis. Similar method that use in manufacturing
Setting selling cost budget standards on a fixed and
expenses.
 Variable portion of the selling expense standard expressed
as a certain amount /per sales $.
 Set up a minimum sales volume which is 65% of current
factory capacity.

8. Exhibit 2
 Disadvantage of using per sales $ as a variable
 That would not reflect important influences on cost as order size, selling
difficulty in certain territories, buyer psychology, etc
 Advantages of using per sales $
 The most convenient measuring stick to use, “everyone knows the meaning of
Expenses at minimum volume = $
2,218
65% capacity = $250,000
Slope = 0.076 per sales
$
Fixed =
$ 318
Expense $
Sales volume
($000)

9.  The new method drastically reduce most of the unfavorable
expenses in budget report
1,517
3,502
1,012
1,800

10. Questions
 Q1. From the information given in Exhibits 1
and 3, determine insofar as you can whether
each item of expense is
 (a) variable with sales volume
 (b) partly variable with sales volume
 (c) variable with some other factors or
 (d) not related to output variable at all.

11. Answer Question 1
 The old system, Exhibit 1, the figures of selling
expenses are fixed or appropriation based on the
previous year and managers use it to estimate the
selling expense budget for succeeding year. Which is
called as an incremental budgeting system.
 However the result is that the selling expenses
budgeting as an input are not match with the expected
output.
 So, the answer is (D). The old system, expenses are not
related to output variable at all.

12. Question 2
 Q2. What bearing do your conclusions in question
1 have on the type of budgeting system that is
most appropriate?
Answer :
 After evaluate the old method and starting all from
the scratch to find the most suitable method for
budgeting, The new method for budgeting is most
appropriate since attends to be more accurate in
representing between the input which is the
flexible budget and the output, actual budget.

13. Question 3
 Q3. Should the proposed sales expense
budgeting be adopted? Why or Why not?
Answer
 It should be adopted.
 The new method, which is able to determine
the flexible budget with more accuracy and
efficiently for predicting future demands for the
business and adjusting for unexpected
external factors than can affect productivity.

14. Question 4
 Q4. What other suggestions do you have
regarding the sales expense reporting system for
Whiz Calculator?
Answer :
 Since the flexible costs are based on an amount
per sales $ which it doesn’t consider the nature of
each selling territory , order size, or consumer
behavior.
 Plus, not all highlighted selling expenses are
variable to sales and some are only partly variable
to sales.
 The company should learn to gather more data
about market demands for each region and do