5195202 Budgetary Control Illustration

1
51-952-02Budgetary ControlIllustration

• Walters Wood Works

Prepared by Claude Laurin
2
Walters Wood Works (WWW)

• Case Outline
• Assess the profitability of the Langley facility
• Need to focus on the most relevant points to
  compare the profitability of both facilities
• Make a decision on a special order
• Once again, only the relevant aspect of this
  question must be considered
• Interim financial statements
• This is a rather open question we will focus on
  users needs

3
Walters Wood Works (WWW)

• ANALYSIS OF THE LETHBRIDGE FACILITY
• Cost structure
• To assess the profitability of Langley, it is
  useful to compare it to New Westminster. The cost
  structures of each facility are quite different.
• One can use CVP analysis (breakeven point) to
  determine the variable vs fixed cost proportion
  of each facility.
• The difficulty is only algebraic
• Note
• In an exam situation, at least make a hypothesis
  regarding the cost structure
• Recommendation
• A drastic recommendation can be made here

4
Walters Wood Works (WWW)

• ANALYSIS OF THE SPECIAL ORDER
• Focusing on the relevant aspect, fixed costs are
  ignored
• Since the order is only profitable if done at
  Langley, one can assess whether it would be
  preferable to transfer the production from New
  Westminster
• The contribution of the New Westminster facility
  can also be questioned
• Recommendation
• Must accept or reject the order

5
Walters Wood Works (WWW)

• INTERIM FINANCIAL STATEMENTS
• An open discussion of this question is
  interesting
• Focusing on users needs
• Variable costing could be used internally
• External reports should follow GAAP
• It is relevant to discuss capacity issues in this
  case