Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.
Length
This case is
4 pages in length and its case teaching package is
10 pages.
Abstract
This case is set in a specialty manufacturer of industrial measuring instruments in Scotland in 1979. The topic is profit variance analysis.
Profit variance analysis is the process of summarizing what happened to profits during the period to highlight the salient managerial issues. Variance analysis is the formal step leading to determining what corrective actions are called for by management. Thus, it is a key link in the management control process. This element is underutilized in many companies because of the lack of a meaningful analytical framework. It is handled by the accountants in a way that is too technical. This case illustrates a different profit variance framework as a "new idea" in management control.
Linkages to Textbooks or Journal Articles/Fit Within a Course
Historically, variance analysis involved a simple methodology where actual results were compared with the budget, line by line (Phase I thinking). A major step forward was provided by Shank and Churchill (Accounting Review, 1977) who proposed a management-oriented approach to variance analysis. Their approach was based on the dual ideas of profit impact as a unifying theme and a multi-level analysis in which complexity was added gradually, one level at a time (Phase II thinking). Though Shank and Churchill's approach represents the best documented framework in the literature so far, their approach needs to be modified in important ways to take explicit account of strategic issues. The proposed framework (Phase III thinking) argues that variance analysis becomes most meaningful when it is tied explicitly to strategic analysis.
This case presents an excellent opportunity to illustrate the three phases or generations of thinking about profit variance analysis and to emphasize the superiority of Phase III thinking. The "message" in the case is to emphasize how variance analysis can be, and should be, redirected to consider the strategic issues that have, during the past twenty years, become so widely accepted as a conceptual framework for decision-making.
We use this case immediately after the Boston Creamery case. That way, the students are "set up" to focus on a Phase II analysis. In class we start with the Phase II analysis, as a review of the Boston Creamery case and then deal explicitly with the strategic issues in Phase III.
Study Questions
The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.
If you do not have Microsoft Word, you can download the free Microsoft® Word Viewer 97 right here: For Windows 3.x For Windows 95
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