WILMONT CHEMICALS CORPORATION Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Wilmont Chemicals Corporation

The report regarding the Wilmont Chemical Corporation represents the evaluation using the three different types of profit and loss statement that would be produced under the recent fiscal period. The analysis made for the reason of comparing the three profit and loss statements and also for reviewing the relevance of these three income statements with respect to the use. The use of the income statement under the management for of determining the deviations between the actual result and the projected results is to deduce whether one of these is providing the realistic approach of the business operations or not. These deviations also describes the challenges during the implementation of strategies while maximizing the profitability from operations.

PROBLEMS STATEMENT:

The Wilmont Chemicals Corporation has to compare three different income statement formats that are actual income statement, budgeted income statement and flexible budgeted income statement of the latest month and the deviation of the profits of actual results from static and flexible budgeted statement and its relevancy.

The following challenges were faced by the Willmont Chemical Corporation that were critically evaluated in the analysis.

Preparation of the profit & loss account of actual performance; after calculating the cost of goods sold and ending inventory,other non-manufacturing cost, administrative expenses and any other relevant cost for the period by using the actual sales units and actual cost incurred during this period.
Preparation of static profit & loss statement using estimated sales units and its relevantcost before the start of the fiscal period by using these projected values of cost of goods sold, ending inventory and non-manufacturing cost to calculate the profit and loss for the Wilmont Chemicals Corporation.
Preparation of flexible budgeted income statements using actual sales units and its relevant cost before the start of the fiscal period by using these projected costs per unit for the cost of goods sold, ending inventory and non-manufacturing cost to calculate the flexible budgeted profit and loss statement for the Wilmont Chemicals Corporation.

ANALYSIS:

This analysis is done with respect to three different income statement scenariosto the Wilmont Chemicals Corporation. These three different scenarios are;

Actual Income Statement,
Static Income Statement, and
Flexible Budgeted Income Statement.

Static Income Statement:

Static income statement is also known as budgeted income statement. Static budget is a budget which cannot be changed with the change in unit volume. A static budget is prepared through estimated values for future income before the start the start of the period of which the income statement is going to be prepared. The main reason to prepare a static budget is to compare actual results with our estimated budget that is static budget, the difference arises in actual budget and static budget is known as the variance, it may be in the form of a percentage or nominal amount. Variances are helpful in preparing the static budget for the next period becauseit shows the variation in estimates with actual results.

Static Budget of Wilmont Chemicals Corporation is prepared at a volume of 11,000 units which shows a cost of goods sold = $396,000/- and a manufacturing expense of $80,000/- as it is mentioned in the given case which results in a gross income of $30,000/-. These are the expected valuesof profit and loss statement for the coming period ofthe Wilmont Chemicals Corporation.

Calculation Shown in Exhibit 1.

Actual Income Statement:

Actual Income Statement shows the actual face of the performance of the company. The actual income statement is prepared through by using actual values for income at the end of the periodfor which the profit and loss statement is prepared.This actual income statement is prepared to see the actual profits and cost incurred during this period and also used to compare with the projected income statement to check the performance of the management and staff. This income statement which is based on actual figure will compare with the static income statement to perform the variance analysis.

An actual income statement of the Wilmont Chemicals Corporation is prepared at the actual salesvolume of 10,000 units which shows the cost of goods sold for$396,690/- and the actual manufacturing expenses of $84,000/-which are mentioned in the given case which results in a gross loss of $360,690/-. These figures are the actual results of business for the just ended period ofthe Wilmont Chemicals Corporation.

Calculation Shown in Exhibit 2.

Flexible Budgeted Income Statement:

The flexible budgeted income statement is a budget income statement which can be changed with change in unit volume. Flexible Budget shows the budgeted profit and cost of actual sales volume. This flexible budget is prepared by using budgeted values for income at any time during the fiscal period for which the profit and loss statement is prepared. This flexible income statement is prepared to see the budgeted profit and cost incurred during this period at actual sales volume and also used to compare with the actual income statement to check the performance of the organization. This flexible budgeted income statement will compare with the actual income statement to perform variance analysis..................

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