5 Pages Posted: 21 Oct 2008
This case presents an opportunity for students to use flexible budgeting to perform a variance analysis on the operating results of EntertainmentNow.com. First, the company's original budget is flexed to account for changes in sales volume. Then, actual results are compared to the flexed budget and analyzed for product mix, price, cost of goods sold, efficiency, and other variances. In addition, the case requires a simple calculation to determine the breakeven level of sales given the company's current variable and fixed costs.
Rev. Jun. 19, 2009
It was a chilly December evening, and Mark Dibbs was working late again. As the vice president of financial analysis for EntertainmentNow.com, Dibbs had been charged with analyzing the company's financial results for the past year. EntertainmentNow.com's operating budget for the past year showed an expected net loss per item sold of $ 1.94. The company's actual financial results, however, showed a net loss per item sold of $ 2.10. Dibbs was expected to explain this variance fully and to make recommendations to senior management based onhis analysis.
EntertainmentNow.com offered a comprehensive array of books, music, videos and DVDs, toys, and small electronics on the company's international Web site, EntertainmentNow.com. Considered one of the world's leading Internet retailers of entertainment products, the company focused on providing superior customer service. Similar to Amazon.com, EntertainmentNow.com purchased products from vendors, held the products in inventory, and fulfilled customers' orders directly. EntertainmentNow.com marketed and sold primarily to individual customers. Recently, however, the company had begun serving corporate and institutional customers as well.
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Keywords: break-even analysis, budgeting, cost accounting, profit planning, profitability analysis
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