Question

Assume the following scenario:

FreshPak Corporation manufactures two types of cardboard boxes used in shipping canned food, fruit, and vegetables.

a) By looking at their Sales Budget, the actuals sales in units was 480,000 which was below the budgeted 500,000 units. Provide 3 possible explanations for the variance in unit sales.

b)By looking at the Raw Materials Budget, assume the company uses raw materials for its boxes from trees supplied from sources within the Amazon. It is well established that the Amazon is a major producer of tree products to the United Stated and many countries in Europe, in fact the Amazon is the source of nearly 40% of the world supply. You hear on the news that there has been significant protest of the deforestation of trees in the Amazon as a result of concerns over global warming. Consequently, the United States has banned U.S. based companies from purchasing any byproducts of trees which are sourced from the Amazon. Describe how the ban of materials from the Amazon can affect the company’s operations, you must list 3 potential issues. What would you recommend to address the issues you have identified?

Please write 6-10 sentences for each question.

Answer 1

a) Actual sale=480000, Budgeted=500000

Reason for variance in unit sale

• Demand of product has decreased because of any factor like increase in selling price of product.It may also possible that due to less advertising expenditure share of freshpak has decreased in market.
• Competition has increased in market due to new competitors entered into the market. That's why freshpak is unable to sell less units than budgeted.
• Product has become outdated .Consumers are not willing to purchase these products due to change in technology,change in fashion or trend.

b)United States has banned import of product of trees from Amazon which is major source of raw material .

• Due to non availability of raw material, Production of freshpak will be adversely affected.Automatically , price of cardboxes will increase at higher rate.
• It will result in lose of market share of freshpak.
• Adverse effect on financial and profitability ratios of company

To address this issue

• If possible,Company should make efforts to find out another supplier.
• Reduce the non value added activities(which do not contribute in value of products).It will reduce wastage of raw material.
• Company should work on finding out substitute of tree products which is not harmful for the environment.