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Woodside Products, Inc.
Author(s):
Reece, James S.
Functional Area(s):
   Management Control Systems
Setting(s):
   For Profit
Difficulty Level: Intermediate
Pages: 2
Teaching Note: Available. 
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First Page and the Assignment Questions:

Phil Brooks, president of Woodside Products, Inc., called Marilyn Mynar into his office one morning in early July 2003. Ms. Mynar was a business major in college and was employed by Woodside during her college summer vacation.

Marilyn, I’ve just received the preliminary financial statements for our 2003 fiscal year, which ended June 30. Both our board of directors and our shareholders will want, and deserve, an explanation of why our pretax income was virtually unchanged even though revenues were up by $363,000. The accountant is tied up working with our outside CPA on the annual audit, so I thought you could do the necessary analysis. What I’d like is as much of a detailed explanation of the $1,954 profit increase as you can glean from these data (Exhibit 1). I’d also like you to draft a statement for the next board meeting that explains the same $1,954 profit increase, but in a fairly intuitive, summary way. Of course, that doesn’t mean ‘don’t use any numbers’!

Assignment

  1. Prepare the detailed analysis of the $1,954 profit increase from fiscal 2002 to fiscal 2003 and draft an explanation for Woodside’s board of directors, as requested by Mr. Brooks. For the board’s report, you may make any reasonable conjectures you wish as to what caused the variances you have calculated. For both years, assume that inventory was valued at $55 per unit. Assume also that none of the members of the board of directors has expertise in accounting calculations or terminology.