FINANCIAL MANAGEMENT CASE STUDIES
Introduction
This series of financial management case studies will be based around the business of
Coverdrive Ltd, a manufacturer of high quality, hand made cricket bats.
Coverdrive Ltd is based in Whitby North Yorks and is an owner-managed company. It had been originally formed in the early 1980’s as a partnership with the aid of some
European funding.
It currently has a budgeted turnover of £2.75m with anticipated profit for the year of
£0.40m.
This first case study focuses on the concept of standard costing, variance analysis and the reconciliation of budget to actual profit through an analysis of the main cost variances. The scenario assumes that you work as an assistant in the SME business services unit of Dunn and Musgrave a firm of accountants and consultants. You have recently introduced, at Coverdrive Ltd a system of standard costing and budgetary control.
The objective of the system is to generate a monthly report to show the following:
Budget Operating Statement
Actual Operating Statement
Control Ratios
An analysis of variances to show:
Direct Labour Variances:



Rate
Efficiency

Direct Material Variances:



Price
Usage

Variable Overhead Variances:



Expenditure
Efficiency

FINANCIAL MANAGEMENT CASE STUDIES

Fixed Overhead Variances:



Expenditure
Volume:
Capacity
Efficiency

Sales Variances:



Sales Price Variance
Sales Margin Quantity Variance

Reconciliation budget to actual profit
Break-Even Point:



Budget
Actual

Standard Costing – a definition
“A control technique which compares standard costs and revenues with actual results to obtain variances which are used to stimulate improve performance.” (CIMA)
The Objectives of Standard Costing and Variance Accounting
Terry Lucy in his excellent text “Management Accounting” outlined