Budgeting and Performance Evaluation Teddy Bear Toy Corporation

Question: Discuss about theBudgeting and Performance Evaluation for Teddy Bear Toy Corporation. Answer: Introduction Teddy Bear Toy Corporation is a division of Acme Products Limited that deals in the manufacturer of toys. Daphne Wong heads the firm. She just received a preliminary report, and the results were not that pleasing. Her budgeted figured had deviated from the actual data. This report analyzes the possible causes of the variances, what modification could b done to the incentive plan, and how the firm could incorporate a balanced scorecard in its operations. Analysis Likely Explanations of the Observed Variances Teddy Bear Toy Company had many variances both favorable and adverse from its budgeted results. The company realized a favorable sales volume variance of 45,556 units since thy sold at a lower price, they advertised more, and there was less competition (Wiseman, 2010, pp.1067-1094). They, however, incurred an unfavorable sales price variance on retail and catalog since they decreased their prices and faced more competition because their competitors also lowered their prices to lure customers to buy from them as seen in the appendix (Wiseman, 2010, Pp.1067-1094). The teddy bear toy corporation also realized an unfavorable direct material price variance of $ 214,916 since there was a rise in the market prices of raw materials and they purchased many high-quality raw materials to cater for the rising demand for their goods (Bhimani, 2012, pp.300-310). The firm also realized an adverse direct labor rate variance of $ 980,305 as seen in the appendix. Ideally, this variation is caused by a rise in the labor rates causing the company to pay its workers higher wages. The teddy bear organization also realized an adverse variable overhead spending variance of $ 679,361. This difference was caused by preferring high quality of labor (Hart, Wilson, and Keers, 2001, pp.299). The firm also incurred a favorable manufacturing overhead variance of $ 3,023 and a favorable administrative overhead variance of $ 261 as seen in the appendix. This implies that they were able to plan and control their fixed overhead variance. Lastly, the business incurred an unfavo rable fixed selling expenses variance of $ 560,192, which shows that they did not plan well and they, therefore, ended up spending more on advertising than they should have. Advantages and Disadvantages of an Incentive Plan An incentive plan is a tool used by departmental heads to motivate their workers by rewarding those who show high performance and encouraging those who portray little performance. Its main advantages are it ensures motivation of employees (McQuerrey, 2010). Ideally, it is a fact that when the employee is rewarded they get encouraged to achieve better results thus increasing the productivity of the departments. Second, it increases the earnings of a firm (McQuerrey, 2010). This is because high productivity would lead to increased sales and hence higher profits. Third, incentive plans are beneficial since it ensures the loyalty of the employees to the firm (McQuerrey, 2010). This is because when they are rewarded through incentive programs, they are likely to be loyal to the company and therefore make it achieve greater strategic goals. This implies that they will be unlikely to quit their employment opportunities in search for better job opportunities thereby leading to reduced employ ee turnover. Lastly, incentive plans would result in collaborative efforts where both the employees and the departmental heads work together to achieve the strategic goal of the enterprise (McQuerrey, 2010). Despite its numerous advantages, it also experiences some disadvantages. According to Alex Saez, as an employer, one may feel that the incentive ought to be in a consistent performance and not a single performance (Saez, 2010). If employees find out that they are being evaluated this way, they will become resentful to those in businesses who are receiving higher bonuses (Saez, 2010). To make some modifications in the incentive plan, I would encourage that Wong offers non-cash rewards rather than cash rewards such as trips and gifts. This would reduce the resentment of the junior employees to those in office and therefore encourage them to work harder. Balanced Scorecard The performance dimensions that are included in a balanced scorecard consist of the learning and growth perspective, the internal business process perspective, the customer perspective and the financial standpoint (Meyer, 2009, pp.66-100). The performance indicators may include whether the teddy bear firm could improve and create value for the business, what exactly they must do to excel, how the customers see them, and what image they portray to their shareholders (Kara Mohamed, 2006, pp.202). When the teddy bears organization analyzes these indicators, they would be able to determine what they need to do to improve (Horngren, Harrison, and Oliver, 2008, pp.99-101). Recommendations This report recommends that Wong implements a balanced scorecard approach into the firm. Here she would be able to facilitate what the customers want, where they want to be, how the shareholders look at the organization, and how they can create value. Lastly, the report recommends that Wong looks at cost-effective ways of production. References Meyer, M. (2009). Rethinking performance measurement. Cambridge: Cambridge University Press. Pp.66-100. Retrieved on 26 September 2016. Kara Mohamed, M. (2006). Balanced scorecard implementation. Pp.202. Retrieved on 26 September 2016. Horngren, C., Harrison, W. and Oliver, M. (2008). Accounting. Upper Saddle River, N.J.: Prentice Hall. Pp.99-101. Retrieved on 26 September 2016. Saez, A. (2010). The Disadvantages of Incentive Plans. StudioD. Retrieved on 26th September 2016 from https://www.smallbusiness.chron.com/disadvantages-incentive-plans-56703.html/ McQuerrey, L. (2010). The Advantages of Incentive Plans. StudioD. Retrieved on 26th September 2016 from https://www.smallbusiness.chron.com/advantages-incentive-plans-55858.html/ Wiseman, B. (2010). Budgeting. New York, NY: Weigl Publishers. Pp.1067-1094. Retrieved on 26 September 2016. Bhimani, A. (2012). Introduction to management accounting. Harlow: Financial Times Prentice Hall. Pp.300-310. Retrieved on 26 September 2016. Hart, J., Wilson, C., and Keers, B. (2001). Budgeting principles. Frenchs Forest, N.S.W.: Prentice Hall/Pearson Education Australia. Pp.299. Retrieved on 26 September 2016.