Strategic Profit Variance Analysis: A Management Control Systems Perspective
Pelican's purpose is to assist students and faculty adopt a strategic management control systems perspective when performing multi-level variance analysis in a multi-product setting. Pelican facilitates an evaluation of each product's profit variance independently of other products [Analysis2 screens]. Where market share data is available Pelican determines share of market and market size variances for each product and in total [Analysis2b screen]. Pelican also facilitates an evaluation of the proft variance of products between which management expects and budgets a unit-sales relationship* [Analysis3a screen]. In addition, where data on substitute products' shares of their total market is available Pelican determines market share and market size variances for each product and in total [Analysis3b screen]. All of the analysis-screens are fully annotated. The strategic and responsibility accounting implications of these analyses are explicitly considered in the Responsibility screen.
The main challenges for students are (i) to understand the mechanical aspects associated with calculating the variances and (ii) to determine, using an awareness of Pelican's competitive product strategies and any unit-sales relationship, which of the following screens is/are most appropriate for the profit variance analysis.
Pelican facilitates the interactive creation and discussion of an unlimited variety of scenarios for strategic profit-variance analysis. It supplements textbooks that discuss profit variance analysis from a strategic viewpoint and follows the approach described in (i) Variance analysis: A management-oriented approach, John Shank and N. C. Churchill, The Accounting Review, October 1977, pages 950-957, and (ii) Profit Variance Analysis: A Strategic Focus, Vijay Govindarajan and John Shank, Issues in Accounting Education, Vol. 4 No 2 Fall 1989, pages 396-410.
* The following are four examples of unit-sales relationships that may be factored into the budget by management: 1) The sale of EM and EI varies proportionally with total sales; 2) EM and EI are complimentary (where increased sales of one product result in increased sales of the other); 3) EM and EI are substitutes (i.e., compete in the same market where increased sales of one product result in decreased sales of the other); 4) Management plans that EM be made only after satisfying EI sales: EI have priority access to the limiting factors of production.
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