CONESTOGA COLLEGE

Solartronics Inc.
CASE 1

Ramanjeet Chahal
6/4/2014





Memorandum
TO: John Holden, President and General
Manager of Solartronics, Inc.
From: Ms. Blocker, Controller
Re: January Financial results

Company Summary
Solartronics, Inc. is a small Texas based company that producing solar energy panels. It had
established since mid-1977. At first, this company had some bad years but at the end of 1983 it
had survived and was able to position itself as a reasonably good-sized firm within the industry.
Important Issue
In the autumn of 1983, the company was willing to professionalize itself by hiring new
controller and financial manager, Mrs. Lisa Blocker, to replace a full-time, full charge
bookkeeper. Mrs. Blocker made a new, summarized income statement using monthly basis.
Company Problem
The new summarized income statement for January 1984 was confusing for the companys
president and general manager, Mr. John Holden.
Impact on sales:
Budgeted Sales
January 1984
Actual Sales
January 1984
$3,000,000/12= $250000 $165000
The actual sales were very low as compared
to the budgeted sales which influenced the
profits and resulted in losses of $8400 in the
month of January.
Actual sales are lower than budgeted because
of the season downturn.






1. Why are the reported results for January so poor, particularly in light of the expected,
average monthly profit of $30,000?
The summarized income statement for January shows that the firm reports a loss $8,400. It is
so poor if compared with the expected monthly profit of $30,000(360,000/12). The main reason
is related to the sales. If the budgeted sales for the year are $3,000,000, the expected sales for
each month are $250,000 (3,000,000/12). But from the case, the actual sales for January are
only $165,000. The sales had been down, primarily due to the normal seasonal downturn, and
that production had been scaled back to help reduce the level of inventory. Since there is a
lower level of production than expected, there must be variances in the operating costs, mainly
from the fixed factory overheadvolume, that are unfavourable. Because when fixed overhead
is under applied, additional overhead costs must be charged to the units produced.

2. What additional data would be useful in analysing the firms January performance? Why?
In analysing the firms January performance, there should be additional data. The seasonal
market analysis to analyze market conditions, so the company can prepare for the actions to
face the market conditions since it will influence the sales and the company also needs the sales
prediction among the peak season and low season. Another data is industrial analysis that will
show if this condition is also happened in other companies. In budgeted income statement,
Operating variance such as direct labour, direct material, variable factory overhead, fixed
factory overhead-spending, fixed factory overhead-volume were not given on monthly basis . If
there were revenue variance, selling price variance, mix and volume variance, mix variance,
volume variance, other revenue analysis, market share variance, industry volume variance,
expense variance in the analysis statement given then it would be useful data for analyzing the
firm's January performance because these data can inform us the difference between the
revenue and expenses.
Conclusion
In conclusion after reviewing Solartronicss January income statement Mr. Holden the president
of the firm saw that the companys direct labour, variable overhead and fixed factory overhead
were not favourable. Also with added information such as performance operating variances and
revenue variances the company can make better decisions to help company meet it budgeted
goals. Mr. Holden had not expected that the firm report a loss for the month of January. He
wondered if the first months results were bad in terms of the budgeted results for the year.
While he knew that sales had been down because of the normal seasonal downturn, and that
production had been scaled back to help reduce the level of inventory, he was still surprised. He
was concerned that such a poor start to the year might make it difficult to reach the sales that
were budgeted 10% higher than previous year.

Reference:
Anthony, Robert N. and Vijay Govindarajan. Management Control Systems. 12th edn. McGraw-
Hill.