case of Decker and his partners

 case of Decker and his partners

Introduction

Business face competition and that`s normal. However, competition should not expose the business to unfavorable experiences. The business enterprise has a role to play to ensure their survival in the market, even when the competition is fierce. Proper strategies need to be employed to enable the business to adapt to the game. It should strive to ensure that it competes and maintains its ability to maximize profit. The business operator should, therefore, be very keen in their practices as they run business.

In the case of Decker and his partners, operating a musical instrument repair store has been a big challenge since Best Instrument Repair came into the industry. Competition has been high, and they have lost the majority of their former clients. Following the call that was made to Decker by a client, it shows that Best Instrument Repair was offering quality services at a lower price than the Decker`s shop. When the shop`s CPA analyzed the financial statements of the business, a considerable gap was realized to exist between the planned and the actual results. The company was simply not reaching its target since the arrival of the new rival.

Factors causing the difference between the planned and the actual results in Squeaky Horn are described by the strategies that the business application when the rival enters the market. They tend to reduce charges of some of their services to retain customers and be useful in the market. The variance that is occurring in the business planned, and the outcome shows that it did not perform as expected. The sales and profit of the business tend to be less than it is planned. This is not favorable for the shop to continue in the market (Timothy 2014). The expenses and costs of the company are more than they were initially planned.

During planning, the shop did plan to include advertising, depreciation, and rent for the office as fixed expenses in the budget. However, after the arrival of a new rival in the market, the shop had to increase some of its activities, such as advertisement, to compete favorably. When planning for such expenses, the business should not have assumed it to be a fixed expense due to the prevailing conditions of the market. Having an increase of $ 500 more than the budgeted amount means that the business is incurring extra charges on the activity. Advertisement is an expense based on the transfer of payments, which does not result from increases in the income directly. The primary cause of this effect was due to the implications of the management on the cost of activities such as advertising.

Plan                        Actual

$ 12,000 fixed        $ 12,500

$ 12,500 – 12,000 = $ 500

This means that the business expense on advertisement was $ 500 more than what the management had initially planned. If the advertisement was planned as a variable expense, the business could not have incurred the extra charges.

According to the plan, Decker and the two partners were supposed to earn $ 60,000 and 5 % of sales inclusive. This affected the actual result of the business since they were entitled to a fixed salary regardless of the market condition or the sales in the year. It recommended that the three partners be paid according to the net income of the business.

The shop plans to pay $ 20 an hour for seasonal employees. This tends to be quite a mistake since the work that they perform should be used to determine the payment. The seasonal employees should be paid on commission of the work done rather than the fixed amount planned. The salaried employees were also to be paid a fixed amount of $ 38,000 per year, and the business should have introduced a basic salary and a commission on the tasks performed to ensure that they do not experience a deficit in their finances. Salaries should be based on the commission due to the prevailing conditions of the market.

After realizing the high rate of competition in the market, Decker and partners decided to charge $ 30 per hour for band repairs and $ 28 for minor orchestral. Later, after the financial year, they experienced an increase in the volume of jobs in minor orchestral repairs due to the low charge that they billed to their customers. The less fee led to a rise in the capacity of the number of jobs planed. However, minor repairs on the band experienced a decrease in the number of jobs due to the high charges that the shop billed the customers.

Conclusion

Many businesses, including Squeaky Horn repairs,, tend to either ignore or forget the other side of budgeting. Budgets are too often discussed, accepted by the management, and forgotten in the process of business operation. However, some budgets do not meet the needs of the business since they do not take into consideration the conditions of the market in which the company depends. Therefore, the difference occurring between the planned and the actual results should not be of a massive gap as it is in the case of Squeaky Horn.

Reference

Timothy J, (2014) plans vs. actual means management, retrieved from: https://leanplan.com/plan-vs-actual-example/