Mac Chemise Case

Exercise 15-23 (Bhimani et al. 2008)

Solution

See excel sheet for calculations

Interpretation of results: The overall variance is marginal (-658 U), despite the difference between output volume. The sales volume variance is strongly negative (-4,636) which confirms this. As a consequence, there is a very positive FB variance (3,978) which means that actual costs are lower than what budgeted costs should when adjusted to the actual output volume. This is mainly due to an increase in efficiency (3,876); the price variance is marginal (102).

Normally, this is a good sign, as it means improvement against the budget. This is strange, however, given that Armand has detected that workers have a lot of time to talk about football or sitcoms. So what?

It seems that workers have tried to establish low standards (budgeted values) for labour hours (efficiency) when these standards were initially set with the help of the consultant. They may have, e.g., added steps in working on a shirt that are not really necessary or simply may have taken more time on each step than necessary. Employees may have taken these actions for several possible reasons: They may be paid on a piece-rate basis with incentives for above-budgeted production; they may want to create a relaxed work atmosphere, and less demanding standards can reduce stress etc. This behaviour is unethical if it is deliberately designed to undermine the credibility of the standards used at Textiles-Georges-Grassens.

Poitou-Chemises could use the France-Solutions information in several ways:

• For pricing and product emphasis purposes. Poitou-Chemises should avoid getting into a pricing war with a competitor who has a sizeably lower cost structure.

• As indicators of areas where Poitou-Chemises is either highly cost competitive or highly cost non competitive.

• As performance targets for motivating and evaluating managers.

The main pros of France-Solutions information:

• Highlights to...