CLL at the outset represents a small sized entity that supplies wide ranging and varied set of specialized light fixtures for wholesalers limited to Canada. This company over years has been effectively successful in establishing reputation by way of quality products as well as effective services in terms of timely delivery. Irrespective of these past successes, CLL’s financial performance over past 2 years is noted to be declining in a steady manner. The discussion amongst the key management team comprising its president, sales team representative, production team representative, and the company’s financial controller led to collation of various key data sets and the same comprised sufficient information for deciding on further actions.
At the outset, the company’s problems can be identified as the difference between its budgeted plan and the actual outcomes for the company in the year 2014. Herein, it is important to note the significance of budgeting to appreciate the problem facing the company. Budgets can be stated to be most widely employed system of control as the plans as well as control resources / revenues shall be necessary for the overall survival and well-being of any firm (Feng et al., 2014; Warren & Jones, 2018). In essence, budgeting represents a formulation comprising plans over the specific period in future presented as numerical terms (Feng et al., 2014; Warren & Jones, 2018). In presenting the plans by using numbers terms as well as breaking / organizing them as sub-parts of the firm, budgets essentially correlate planning as well as pave way in authority for being delegated with no loss overall control (Feng et al., 2014; Warren & Jones, 2018).
• The company’s forecast / planning of the company is grossly different from the actual reality leading to an unexpected outcome.
• The variance starts from the sales volume, revenue levels until the operating income.
• The variance levels are quite significant with volume variance being -36 per cent and revenue and operating income both at -29 per cent.
• The same means that the company is selling lesser and collecting revenue lesser not only as planned but also as compared to the previous years.
• The same necessitates a detailed assessment and immediate action as response both at strategic level as well as by way of specific actions given the seriousness of this situation.
In evaluating the variance analysis presented in Table 1 it is evident that the variance stems from the sales volume and the revenue collected. The same is further bolstered by the minutes of the meeting amongst the key management team comprising its president, sales team representative, production team representative, and the company’s financial controller wherein it is identified as follows –
I. most cost items inclusive of sales / marketing salaries are fixed in nature and hence decoupled from any disturbances for affecting the budget,
II. huge variances between CLL’s pricing for the studio, pot and touch wherein the CLL’s price for these products are far lesser than that of the competition as illustrated in the Table 2 below, and,
III. These price variances are naturally causing increased demand leading to stock issues as stated by the production team representative for the products of studio, pot and touch were the price is grossly less than the market levels.
• Ineffective Financial Control:
Financial control represents the control over the financial resources while they flow within a firm in terms of revenues, investments from shareholders, etc., are being held by the organization in terms of retained earnings, working capital, etc. as well as flowing out of the firm in terms of business / operational expenses) (Gitman et al., 2015; Bekaert & Hodrick, 2017). This form of method over the control aids the business managers to acquire, allocate, as well as evaluate the employment of the financial resource as well as enable the managers in attaining acceptable levels of profitability standards in addition to solvency and liquidity (Gitman et al., 2015; Bekaert & Hodrick, 2017).
MIS capability represents a small team that undertakes data analysis for periodical measurement of organizational performance by way of both management, business, market and financial metrics as well as its presentation to the senior management (Gitman et al., 2015; Bekaert & Hodrick, 2017). The same aid in having periodical status review of the organizational performance such any gross divergence can be immediately noted, suitable causes identified and appropriate decision making undertaken (Gitman et al., 2015; Bekaert & Hodrick, 2017).
• Immediate Action to be Undertaken:
The company needs to revise its pricing of the products to make it in alignment with the market trends. The same shall result in change in sales volumes. At an overall level, the same shall increase the sales volume and resulting revenue collection.
o The company needs to revamp and establish a strong management MIS capability with suitable abilities for undertaking data analysis for periodical measurements of organizational performance by way using suitable management, business, market and financial metrics as well as its presentation to the senior management.
o Develop appropriate marketing and sales strategy in light of the price changes to the various products as presented in the Table 4 above.