WELCOME TO MY

PRESENTATION

Md. Asibur Rahman

ID-05-051

CASE 4-4: WHIZ CALCULATOR COMPANY

WHIZ CALCULATOR COMPANY

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. The old method was unsatisfactory according
to Mr. Riesman.
while making the overall budget for the
organization for a particular fiscal year.

OLD METHOD OF BUDGETING

Selling expenses were budgeted on a fixed or
appropriation basis.
Each October, the accounting department sent
records of actual expenses for the preceding year
and for the current year - to - date, to the branch
managers and to other managers who in charge of
selling departments.
Looking into the preceding years report & by their
judgment, these department heads drew up and
submit estimates of the expenses for their
departments for the succeeding year.

OLD METHOD OF BUDGETING

Then the estimates made by the branch managers
were sent to the sales manager, who was in charge
of all branch sales.
Upon the approval by the sales manager, the
estimates of branch expenses were submitted to
the manager of marketing .
Lastly budget was submitted to the budget
committee for final approval.
These budgeted figures were divided into 12 equal
amounts and compared to each month actual
results.

PARAMETER FOR SALES BUDGETING

Sales in the previous years
Competition
Expected volumes to be sold and at what price
Raw Material costs
Other related expenses

SALES BUDGET AND RELATED SELLING

EXPENSES CAN BE BASED ON
Judgments: It is more of the fixed method
approach wherein managers make sales budgets
per their own judgment and experience.
Percentage of sales method: The related
expenses are purely based on how much sales is
done or to be done.

However, both methods individually may not be of

much help. Hence, certain companies used a
combination of two methods to take the complete
advantage for controlling the systems.

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.

SOLUTION OF Q1

In Exhibit 1, the figures of selling expenses are

fixed or appropriation basis wherein the managers
use judgment method for arriving at the budget for
succeeding year. This is known as static budgeting.
They work well for evaluating performance when
the planned level of activity is the same as the
actual level of activity, or when the budget report is
prepared for fixed costs. Thus, in old system,
expenses are not related to output variable at all.

SOLUTION OF Q1 ( CONT.)
In order to have proper control over costs as well
as to evaluate the performance, management must
use a budget prepared for the actual level of activity
(here minimum sales volume = 65% of capacity
utilization). But at the same time, the management
needs to capture the variances in actual sales. This
can be achieved by way of flexible budgeting.
Therefore, the new system is partly variable with
sales volume and partly fixed vis--vis old system
which was completely fixed.

Q2. WHAT BEARING DO YOUR CONCLUSIONS IN

QUESTION 1 HAVE ON THE TYPE OF BUDGETING
SYSTEM THAT IS MOST APPROPRIATE?

SOLUTION OF Q2

Based on the conclusion in question 1, the new

method for budgeting is most appropriate since
attends to be more accurate in representing both
the requirement for input cash flow into a business,
as well as projected sales profits as compared to a
static budget. Since a flexible budget tries to adapt
to changing resource levels in consumption, it
offers a more precise level of control over business
processes than a static budget can. Variable
budgets also tend to be better at predicting future
demands for the business and adjusting for
unexpected external factors than can affect
productivity.

Q3. SHOULD THE PROPOSED SALES

EXPENSE BUDGETING BE ADOPTED? WHY OR
WHY NOT?

SOLUTION OF Q3
Currently, Whiz Calculator is estimating the budget
for the coming years selling expenses as if it is
comprised of only fixed expenses. President
Riesman finds this method unsatisfactory for two
major reasons:
1. It is difficult to judge how good the estimates made
by the department heads really are;
2.
Selling conditions fluctuate over time and there is
no way to account for these changes in the selling
expenses once the budget is set for that year.

SOLUTION OF Q3 (CONT.)

The new method, if adopted, would be based on both

fixed and variable costs. The fixed costs will be those
incurred at the minimum sales
volume and the variable costs would be expressed as a
n amount per sales dollar.
It is important to note that this new method does not
consider the nature of each selling region, economies of
scale for large orders, or consumer behavior.
Additionally, not all highlighted selling expenses are
variable to sales and some are only partly variable to
sales.
When comparing the new method figures with the
figures from the current method, it is apparent that the
new method has lesser variation with the actual sales.

Q4. WHAT OTHER SUGGESTIONS DO YOU HAVE

REGARDING THE SALES EXPENSE REPORTING
SYSTEM FOR WHIZ CALCULATOR?

SOLUTION OF Q4
The new method is based partly fixed and partly
variable components. However, while doing so the
company should also focus on:
Demand from various regions.
The company should establish the standard costing
methods as well. This would help in comparing the
actual costs with the standard costing.
Try to consider economies of scale since this would
reduce the overall costs.