Anjo Ltd

Lin Fitzgerald, Warwick Business School and Anne Deakin, Centaur Metals

Background

Anjo Ltd was established in 1986 by two brothers, Andrew and Jonathan Bright. They saw a market for
providing accessories in the home to accommodate the new era of home entertainment, such as
television cabinets, record stands, hi-fi cabinets, tape cassette racks and more recently video and CD
racks.

Andrew and Jonathan have retired from the business and Andrew's son, Michael, now runs the
business. Michael introduced the use of regular management team meetings in an effort to ensure
shared aims and objectives by improved information flows. In addition he introduced the current system
of standard marginal costing and budgeting, and agreed with the accountant that for internal reporting
stock was to be valued at standard marginal cost. Quarterly meetings for the management team are
held where the variances arising between actual results and budgeted results are reviewed and any
problems or new ideas can be explored. Michael is becoming concerned that in recent meetings the
various managers seem to have become more defensive about their own position and are not
considering the company as a whole.

The five members of the management team are:

The Management Accountant

One of the products that Anjo currently produces is a CD rack. It produces these to two specifications
aiming at different markets; a veneered version which is sold through a catalogue, and a deluxe version
which is sold through High Street furniture shops. The latter is currently one of the company's best
sellers and the company is keen to maintain market share in this product.

Production Process

Most of the products are made from bought in components which are assembled by the production
department. Production and sales of the CD storage racks have shown consistent growth over the past
few years with the deluxe version becoming more popular in recent times. The CD storage racks consist
of an outer shell fitted with an inner plastic coated rack. The production processes are the same for both
versions of the storage rack. They are distinguished by the materials used for the outer casting. Ash
veneered chipboard is used for the catalogue version and mahogany for the deluxe version. Both
products use the same type of plastic rack insert. The company has a commitment to local suppliers
and currently all purchases of ash veneer, mahogany and plastic racks are bought locally.

Budgeting System

Michael, along with the accountant introduced the system of standard marginal costing so that budgets
may be prepared and variance analysis readily carried out. At the start of the budget period the
Accountant sends a memo to each department detailing the planning parameters for the period.
Departments respond with their outline proposals. There follows a period of negotiation after which the
finally agreed departmental proposals are circularised and Michael receives a copy of the full Master
Budget.

Progress against budget is discussed at the quarterly management meetings. In preparation for these
meetings the Accountant compares the actual results for the period with the planned budget and
produces a variance analysis statement. Departmental managers receive details of the variances
relating to their own departments and are invited to provide explanations at the management meeting

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for any variances that may have arisen. A full copy of the variance report is sent to Michael who also
attends the quarter end meetings. In recent meetings the Accountant has begun to feel that each
department holds him/her responsible for their shortcomings and is anxious to ensure that no blame is
placed on the accounting role.

Further Information

Appendix 1: Budgeted Sales and Standard Cost information for the CD Racks

Appendix 2: Actual Results for the quarter to 30 April 2000

Required
1. Using the information provided produce a variance analysis statement reconciling the budgeted
profit figure to the actual profit figure for the quarter. All relevant variances should be calculated.

2. Prepare a presentation to your seminar group based on the budget and actual results for the
quarter. Your presentation should be conducted as a Board meeting. Each member of the group
should assume the role of one of the members of the management team. Your seminar leader
will provide additional notes for individual members of the team. The chairperson must control
the meeting and invite the accountant to present the variance analysis reconciling actual profit
with budgeted profit. Comments need to be invited from other members of the management
team to explain the variances - there may well be some conflict - and questions invited from the
rest of the Board members i.e. the other groups in the room.

3. After the presentation meeting you are required to produce a summary of key points from the
meeting to include and explanations for the variances produced and Agreed Action points. This
summary should be on one side of A4 and given to your seminar tutor within 24 hours of the
meeting.

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Appendix 1: Budgeted Sales and Standard Cost information for the CD
Racks
Budgeted Sales & Production

Budget information for the quarter to 30 April 2000

Veneered Wood
Sales Units 1300 1500
Sales Price £75 £200
Production Units 1300 1500

There are no stocks held at the beginning of the period.

Standard Costs per unit

Ash Veneered Chipboard CD Rack

Veneered Chipboard (0.5 sheet @ £30.00 per sheet) 15.00

Rack Insert 5.00

Labour (3 hours @ £4.00 per hour) 12.00

Packaging (1 kilo @ £7.50) 7.50

Mahogany CD Rack

£
Wood (9 feet @ £5.00 per foot) 45.00
Rack Insert 5.00
Labour (5 hours @ £4.00 per hour) 20.00
Packaging (1 kilo @ £7.50) 7.50
Variable overheads 15.00
Total Variable Cost 92.5

Additional Information

Variable Costs
Variable costs are charged on a labour hour basis

Fixed Costs
Fixed costs for the quarter are expected to be £35,000

Stocks
There are no opening stocks

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Appendix 2: Actual Results for the quarter to 30 April 2000
Veneered Wood
Sales Units 1000 1700
Sales Price £70 £210
Production Units 1000 1700

Raw materials Used

Wood 15500 feet @ £6.50 per foot

Racks 2700 @ £3.00 per rack

Packaging 2800 kilos @ £7.60 per kilo

Labour
12000 hours @ £5.00 per hour

Variable Costs
Variable Costs for the quarter £36,000

Fixed Costs
Fixed Costs for the quarter £40,000