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basis reveals that the various regions have the same revenue levels and that no action is
immediately required to increase sales in particular areas.
Cost centres
Many of the various cost centres were identified in the creation of the plan. Management
could also gain improved control over costs by separating the production process into a
number of discrete components such as power, research and development and labour.
Trade offs were identified in heating and lighting, labour, raw materials, security, catering,
research and development. Subcontracting advantages had been identified in physical
distribution, and sales promotion. Reducing service levels had not been considered in any
of the main cost centres.
Sensitivity analysis
Cost allocations were straightforward as a single product range was produced by the
company and all costs could be allocated to this one range. Break even occured at
relatively low volumes. Sales forecasts were fairly accurate, with an out-turn varying
between 10 per cent better and 10 per cent worse than forecast. Risks had not changed
significantly since the last budget, and management expected that the out-turn would be
similar to previous years. Increases and decreases in sales of 10 per cent did not
significantly affect the profitability of the operation.
Crazy Foods - plan implementation
Organisational structure
Marketing penetration demands that the company remains close to the market. This will
require a marketing manager to take complete control of the operation reporting to the
marketing director for the foods division. Reporting to the marketing manager will be
production, sales and finance. Support systems will need information on sales progress,
promotional budget effectiveness. Skills reflect the customer requirements, and training
will have to be upgraded as market share increases. Staff numbers required reflect the
volume of production and customer liaison. Certain budgetary areas - distribution,
promotion, inventory control - were the responsibility of particular individuals.
Budget authority
Specific members of the management team had been given authority for the budget
expenditure in their specific areas of operation subject to regular control via senior
management and the standard reporting system.
Monitoring mechanism
Sales and cost variances will be part of the monthly review process. The required
information was integrated into the reporting system.
Crazy Foods - future developments
New project development
New product development budget included the projected costs for the introduction of two
new colours. These had been chosen as providing the best payback on a common internal
rate of return, in competition with the introduction of new production equipment, the
installation of new packaging machinery, or increasing the investment in the warehouse to
computerise stock movements. Marketing management had created effective 'coffee shop'
organisational structures (page 141) to handle the necessary close liaison with the market.
They had identified the various components of the development process and had created
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