Rc Cola Marketing Plan Essay Example For College


I. Executive Summary.

A one-to-three-page synopsis of the plan providing highlights of the current situation, objectives, strategies, principal actions programs, and financial expectations.

II. Situation Analysis

  • Category/competitor definition PHILIPPINE FOOD AND BEVERAGE INDUSTRY Philippines have emerged as one of the rapidly growing food and drinks industries in the Asian region over the recent past. The country is characterized by various factors, such as its growing young affluent population, rising disposable income and rising consumer awareness regarding health and safety concerns.

With these factors, the demand for health food and drinks is surging high, says our new research report, “Philippines Food and Drinks Market:  Emerging Opportunities”. The country exports foods to several countries, including the US, Europe and some Asian countries. However, the ongoing financial turmoil is forcing the country to look at alternative destinations such as the Middle East and Africa. In line with this, it is striving hard to get a share of highly lucrative global halal food industry. The major players in the Philippines food and drinks industry, including San Miguel Corporation, Jollibee Foods Corporation, Pancake House, Inc. and Pepsi-Cola Products Philippines Inc.


Softdrinks, also known as carbonated drinks, cola, soda or pop, is one of the most consumed beverages in the country. Prior to the introduction of bottled water, ready-to-drink teas, ready-to-drink fruit juices, and other functional drinks, it was the usual choice of Filipino consumers in many parts of the country. A pending bill in Congress (House Bill 5039) defined carbonated drinks as “aerated potable water, whether or not it contains added sugar or other flavor sweeteners, and non-alcoholic beverages hich are charged under pressure with carbon dioxide gas and are sold in bottles and other air-tight containers. ” Just like other beverages, softdrinks are a popular thirst quencher in the country

Category Analysis 

Aggregate market factors

Category size / Category Growth Total household spending on non-alcoholic beverages reached P33. 3 billion in 2006 based on the latest Family Income and Expenditure Survey of the National Statistics Office. The figure was higher by 2. 9% per year from P30. 6 billion in 2003.

In inflation-adjusted terms, expenditure grew by 7. 4% per annum during the period. The bulk of the spending may be attributed to softdrinks. Meanwhile, the total size of the softdrinks market in the country was estimated at 8,591 million liters in 2007, with projected growth of 7. 6% in 2008 to 9,241 million liters (www. euromonitor. com) b. Stage in the product life cycle MATURITY The maturity stage is the most profitable. While sales continue to increase into this stage, they do so at a slower pace. Because brand awareness is strong, advertising expenditures will be reduced.

Competition may result in decreased market share and/or prices. The competing products may be very similar at this point, increasing the difficulty of differentiating the product. The firm places effort into encouraging competitors’ customers to switch, increasing usage per customer, and converting non-users into customers. Sales promotions may be offered to encourage retailers to give the product more shelf space over competing products. During the maturity stage, the primary goal is to maintain market share and extend the product life cycle.

Marketing mix decisions may include:

  • Product – Modifications are made and features are added in order to differentiate the product from competing products that may have been introduced.
  • Price – Possible price reductions in response to competition while avoiding a price war.
  • Distribution – New distribution channels and incentives to resellers in order to avoid losing shelf space.
  • Promotion – Emphasis on differentiation and building of brand loyalty. Incentives to get competitors’ customers to switch.

Sales cyclicity The industry does not respond to sales cyclicity.

Albeit the economic situation may not be stable, the industry experiences minimal changes or does not falter at all and thus, not affecting the whole industry itself.

Seasonality The industry is not subject to seasonality. Since we are in a tropical country, and Philippines in tradition celebrates many occasions and festivities, the market tends to be attracted to cold beverages such as carbonated drinks that hold a large percentage of sales in the beverage industry in the country.

Profits Total household spending on non-alcoholic beverages reached P33. billion in 2006 based on the latest Family Income and Expenditure Survey of the National Statistics Office. The figure was higher by 2. 9% per year from P30. 6 billion in 2003. 2.

Category factors

Threat of new entrants/exits


There is a mass production of bottled soft drinks in the beverage industry here in the country. Three big companies play in this field; they manufacture large numbers of soft drinks that are widely available to mass consumption. Coca-Cola Philippines, Pepsi Company and Zesto Cola dominate the market that entry of new competitors would yield low possibility.


The product differentiation comes from established marketing campaigns that have created brand identification and loyalties. For a new entrant to compete effectively, they would have to be willing to expend the time and resources necessary to first convince the consumer to try the new product, and after trial, switch their loyalties.


Building a new cola brand will eat up big capital. From introduction stage to where you build your brand up to growth stage where it needs extensive promotional efforts and effective marketing strategies for competition.


The threat of new entrants is partially increased by the low switching costs for customers.


There are only few soft drink brands here in the Philippines; they must further build brand loyalty in their core cola products so that customers will not be swayed by the cheaper, private label imitations products. Given the access to distribution channels is currently one of the largest barriers to entry, soft drink brands must maintain favorable relations with the large retailers so that this barrier remains strong.

  • Bargaining power of buyers The bargaining power of the end consumer is low.

They are a fragmented group and no one individual’s purchases account for a significant portion of the manufacturer’s profits.

  • Bargaining power of suppliers There are few suppliers for the carbonated soft drink industry. The end product is comprised of few ingredients, which are largely commodities.

Also, it is safe to assume that since there are few soda companies in the Philippines, these companies sales account for a large percentage of the suppliers’ total revenues. Thus, the importance of the soft drinks industry to the suppliers serves to contain whatever bargaining power they may have.

The overall bargaining power of the suppliers is considered to be low.

  • Pressure from substitutes There are many substitutes to carbonated beverages. However, each company has a significant presence in substitute markets so that a decrease in cola consumption can conceivably be made up in increased consumption of bottled water, juices, teas, and energy drinks. The challenge lies in increasing brand loyalty within these substitute markets. Because substitute products are, for the most part, contained within each manufacturer’s portfolio, the threat of substitute is considered low.
  • Category capacity The production of goods is enough considering that the major competing brands of soft drinks in the country are from big international companies. Also, knowing that there are numerous substitutes available, scarcity would be far acknowledged.
  • Current category rivalry The softdrinks industry in the country consists of a handful of players. The market leader is Coca Cola, followed by Pepsi. The other smaller players include Virgin Cola, Zesto, and RC Cola. Coca Cola Bottlers Philippines Inc. (CCBPI) is now 100%-owned by The Coca Cola Company.

The latter bought the entire 65% stake of San Miguel Corporation (SMC) in CCBPI in 2007 for US$590 million. The acquisition includes low-end softdrinks manufacturer Cosmos Bottling Corporation (CBC), which was acquired by SMC back in 2002, as well as Philippine Beverage Partners, Inc. , the company which distributes the products. Today, the company’s carbonated brands in the market include Coke, Diet Coke, Coke Zero, Sprite, Sprite Light, and Royal, and CBC brands Pop Cola, Sarsi, Cheers, Lift, Jaz Cola, and Sparkle. Another player is Pepsi Cola Products Philippines, Inc. PCPPI) which is 32. 9% owned by PepsiCo. PCPPI’s brands in the market include Pepsi, Diet Pepsi, Pepsi Light, Pepsi Max, 7Up, Diet 7Up, Mountain Dew, Jazz, Mirinda, and Mug. The company went public early this year, the proceeds from which are intended mainly for expansion of its carbonated and non-carbonated beverages. Also in the softdrinks business is Interbev Corporation, a subsidiary of beer company Asia Brewery Inc. , which managed to secure a licensing agreement for Virgin Cola, a popular British brand, in 2004. Virgin Cola comes in four variants: regular, diet, lemon and lime.

It competes with lower-priced brands in the market like Pop Cola, RC Cola and Jazz. Juice company Zesto Corporation has also entered the softdrinks market via Zesto Cola in 1994. Its product “challenged the market leaders in terms of taste, refreshing qualities and price. ” Zesto has since diversified its carbonated drinks line to include Zesto Cola Zero Cal, Rootbeer, Rootbeer Light, Twist, Squiz Orange, Squiz Grape, Dalandan Fruit Soda, Calamansi Fruit Soda, and Pomelo Fruit Soda. Yet another player is Asiawide Refreshments Corporation, which is the Philippines’ licensed bottling manufacturer and distributor of US brand RC Cola.

The product is among the relatively low-priced brands in the local market. [pic] Market shares of Key Players Source: AC Nielsen as cited by 2TradeAsia, January 2008

Environmental factors 

Economic The previous recession and economic slowdown have not given the industry a strong blow. During the previous years, in line with the recession, the industry was still able to grow by 2. 9%.

Regulatory Recently, a bill was filed in Congress for the imposition of 20% excise on soft drinks, energy drinks, and non-carbonated beverages.

House Bill 5039 actually seeks to amend section 150 of the National Internal Revenue Code of 1997 by expanding the coverage of goods levied with a 20% excise tax to include the said beverages. It seeks to curb the excessive intake of such beverages, and the same time, generate about 5 billion pesos a year in added revenues for the government. If this bill is passed, it will be another setback for the industry which is still grappling with difficult market conditions.

Social The drive for healthy living and lifestyle may affect the profit stability or decrease the income for this year. C. Company and competitor analysis

COMPETITOR A PEPSI CO. MISSION Our mission is to be the world’s premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.

VISION “PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate – environment, social, economic – creating a better tomorrow than today. ”


  • 8oz Returnable Glass Bottle
  • 12oz Returnable Glass Bottle
  • 1Liter Returnable Glass Bottle
  • 330mL Cans
  • 500mL Plastic Bottle
  • 1. 5Liter Plastic Bottle


Harvest Profit is paramount relative to market share


Age 14-30 Female, male Target at schools,collages, universities, homes, restaurant, hotel and stores POSITIONING “Sarap ng may pinagpipilian”

To refresh the world… To inspire moments of optimism and happiness… To create value and make a difference. VISION Our vision serves as the framework for our roadmap and guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable, quality growth.

  • People: Be a great place to work where people are inspired to be the best they can be.
  • Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people’s desires and needs.
  • Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value.
  • Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities.
  • Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities.
  • Productivity: Be a highly effective, lean and fast-moving organization.


  • 330 ml in can
  • 200 ml glass bottle
  • 237 ml glass bottle
  • 240 ml glass bottle
  • 500 ml glass bottle
  • 500 ml plastic bottle
  • 1000 ml glass bottle
  • 1500 ml plastic bottle
  • 2000 plastic bottle


Harvest Profit is paramount relative to market share ,


Age of 15-25 and also reaches to 40 and above. Their targeting not based on gender but the results also show that both genders like this product and use it.


“Open Happiness”


Coke strives to be a good neighbor, consistently shaping our business decisions to improve the quality of life in the communities in which we do business. It’s a special thing to have billions of friends around the world, and we never forget it.


Our mission is to be the leading manufacturer and distributor of juices, dairy and related food products that best satisfy the growing needs of the customers. This, for us is the means by which we can effectively participate in the social and economic development of the communities we serve, promote professional growth and well-being of our employees, maintain mutually profitable relationship with our trade partners and achieve growth level equal to or better than the norms of the food industry.


To be the leading food and beverage Filipino company competing with the multinational companies. PRODUCT FEATURE SIZES AND TYPE OF PACKAGING

  • Lift ring aluminum can.
  • Polyethylene terephthalate (PET) Bottles.


Growth Increasing the brand’s units or market share with profits condition being secondary.

TARGET MARKET 16-30 Female, male, health conscious market. POSITIONING “zero-cal”


Zest-O Cola in cans is the latest softdrink which challenges market leaders in terms of taste, refreshing qualities, convenience, value, and price.


We value relationships, we produce superior value, we uphold good values.


The seed that ARC planted when it started in 2003. Constantly cared for by relentless hardwork, refreshed by innovative ideas and nurtured with excellence.

The seedling emerged, blossomed and branched out. Now this seedling shows the promise of becoming a great and formidable tree.


  • 240 ml glass bottle
  • 800 ml glass bottle
  • 1. 5 liters plastic bottle


Corporate objectives To increase brand awareness and acquire new customers.

Marketing objectives RC Cola has been around the market for a while now in the Philippines but still has not made it to the top. Aiming to be the number one soft drink brand would not be to realistic, instead we aim to be in the consideration set of every Filipino household and thus be more competitive with the leading brands.

This year we will launch the new and improved RC Cola logo and RC Burst! The first ever fruity flavored RC Cola in the Philippine market. The objectives for the new product this year would be:

  • Increase product and brand awareness through intensive marketing and advertising.
  • Improve customer relationship
  • Attract and acquire new customers
  • Build brand loyalty among customers


The RC Cola logo will be changed. It’s modern and catchier than the previous one. This will need intensive marketing and advertising to make the market knowledgeable to the said change of logo.

The proposed logo was designed for the teens which are the primary target market of RC Cola. The color scheme was maintained (red, white, blue) and the font was clear. The design was hip and trendy, more attractive to teens than the previous one. The RC Burst! Logo was made to describe what RC Burst! is. The tangy fruit flavors that is sure to quench your thirst. The colors were picked to describe the fruity flavors RC Burst! has to offer.

RC BURST! RC Burst! is the newest carbonated drink RC Cola has to offer. Made of real fruit juices, it is made to quench your thirst. RC Burst! has a variety of fruity flavors to offer that is sure to fit your every mood. Orange, Lemon, Strawberry and Grapes are the flavors of RC Burst!

The drink will be equipped with vitamins such as Vitamin C and B to boost immune system. Drinking made fun and healthier! RC Burst! will be available in can and pet bottles.

The most appropriate pricing strategy to use would be penetration pricing. Since the demand for carbonated drinks is elastic considering the availability of substitutes available in the market, this is the best method. RC Cola, since there would be logo modifications and RC Burst! will be launched, the product would gain mass appeal fairly quickly hence, there is no need to price the product high. The threat for impeding competition also gives us the reason to use the penetration pricing.

We are competing against large international companies, so RC Cola must maintain its differential advantage, which is its low price. PLACE Product will be placed at local supermarkets at large retailers like SM and Robinson’s. Also, we will make the product available to small retailers like sari-sari stores and small groceries near residential areas. The plan to tie up with Mang Inasal and Reyes Barbeque would increase brand awareness and brand loyalty.

Product/Brand Strategy

Customer target(s) We target ages 15-30, both male and female and focusing on teens.

Competitor target(s) PEPSI

  • Age 14-30
  • Female, male
  • Target at schools, colleges, universities, homes, restaurant, hotel and stores COCA-COLA
  • They targeted ages 15-25 and also reaches to 40 plus, as they are serving this age group also. Their targeting not based on gender but the results also show that both genders like this product and use it. ZESTO COLA
  • Target ages 16-30, both male and female.

Product/service features 240 ml glass bottle, 800 ml glass bottle,1. 5 liters plastic bottle, RC cola in can.,

Core strategy

Value proposition

Most of our customers said that the best thing about RC cola was its price next its flavor and the model (endorser of the product) so it means that we gain consumers because of its affordable and cheap price. Unlike our competitors, our product was cheaper than their products and all our target market can afford it.

Product positioning “Great taste, Great Value” (RC ng Bayan) RC COLA is positioned as the cheapest soft drink brand in the Philippines.

Supporting Marketing Programs 

Integrated marketing communications plans Magazine – Reading magazines and scanning for pages and pictures are one of Filipino hobbies. They usual browse for fashion and latest updates on the industry through print media. RC cola will post its best and new products on magazines for their customer to be updated in a easy way.

Event- Organizing events will help RC cola to expose their product and to keep customer more interested and curios about the product by offering more gimmicks and fun activities for the customer to enjoy with RC cola. Word of mouth – The most famous and effective advertising promotions. Words will be spread from person to person about the RC cola. B. Price *Magazine Expense – 6 issue (1year) —> 1/4 page 10,000 x 6 = P 60,000 6 issue (1year) —>inside front cover 55,000 x 6 = P330, 000 P390, 000 a year *Events – Potential Location Costs: Site rental fee 50,000 Permit(s)/license 10,000 Potential Rental Needs Furniture (tables and chairs) 2,000

Props 4,500 Stanchions/ropes 1,000 Potential Audio-Visual/Entertainment Costs Recorders/cameras/film 35,000 Overhead projector/cart/screen 2,500 Microphones 1,000 Sound System 25,000 Technical staff/labor 8,000 Talent fee 75,000 Potential Lighting Costs Special lighting (pictures/videos) 5,000 Generator/extension cords 1,500 Misc. Printing/Specialties Gift packs from RC cola 5,000 Prizes 10,000 Total :P685,500 P685,500– event marketing P390, 000-magazine P 1,075,100 total C. Channels (TVC, Radio, Internet, Media and Print Ad) is the famous channels in marketing.

We will be using Internet, Media and Print Ad as our channels in order to communicate with our customers. With the help of these channels we can easily reach our target customers and respond to their needs. INGREDIENTS: Carbonated water, caramel color, sucralose (Splenda® brand, a non-nutritive sweetener), phosphoric acid, potassium citrate, citric acid, gum acacia, potassium benzoate (preservative), caffeine, natural flavors. Sweetened with Splenda. No Aspartame. No Saccharin. No Calories. Very Low Sodium.

Contingency Plans

In cases of emergencies like storms, typhoons are coming; the budget allocated for billboard will be transferred to other forms of advertisements. And we think that these strategies will be able to help us gain profit. A. We are using the budget of billboard to our print advertisements. B. TVC C.

Outdoor ads (transit ads, street ads, etc).

Tying up with fast food outlets here in the Philippines will help us gain more customers. The target fast food outlets would be Mang Inasal, and Reyes Barbeque. Since these outlets are starting to grow, RC Cola would share the same customers these outlets would have. Thus the launch of RC Burst! would easily be known and publicized if we would tie up with these fast food chains.


  • College of Business Administration


  • Submitted by: Mendoza, Annie Faye Pineda, Marie Ahlex Salonga, Bianca MKA 23
  • Submitted to: Ms. Chona O. Bautista March 16, 2011

Setting The Stage For Strategic Compensation And Bases For Pay

Describe the three main goals of compensation departments. Compensation professionals promote effective compensation systems by meeting three important goals:

  1. Internal consistency
  2. Market competitiveness
  3. Recognition of individual contributions.

Internal Consistency – Internal consistent compensation systems clearly define the relative value of each job among all jobs within a company. This ordered set of jobs represents the job structure or hierarchy.

Companies rely on a simple, yet fundamental, principle for building internally consistent compensation systems: Employees in jobs that require greater qualifications, more responsibilities, and more complex job duties should be paid more than employees whose jobs requires lesser qualifications, fewer responsibilities, and less –complex job duties. Internally consistent job structures formally recognize differences in job characteristics, which therefore enable compensation managers to set pay accordingly.

Market Competitiveness – Market-competitive pay systems play a significant role in attracting and retaining the most qualified employees.

Compensation professionals build market competitive compensation systems based on the results of market surveys and compensation surveys. A Strategic analysis entails an examination of a company’s external market context and internal factors. Examples of external market context are the industry profile, information about competitors, and long-term growth prospects. Internal factors encompass the company’s financial condition and functional capabilities – for example, marketing and human resources Strategic analysis permit business professionals to see where they stand in the market based external and internal factors.

Compensation surveys collect and then analyze competitors’ compensation data. Compensation surveys traditionally focused on competitors’ wage and salary practices. Now, employee benefits are also a target of surveys because benefits are a key elements of market-competitive pay systems. Compensation surveys are important because they enable compensation professionals to obtain realistic views of competitors’ pay practices. In the absence of compensation survey data, compensation professionals would have to use guess work to build market-competitive compensation systems.

Recognizing Individual Contributions pay structures represent pay rate differences for jobs of unequal worth and the framework for recognizing differences in employee contributions. No two employees possess identical credentials or perform the same jobs equally well. Companies recognize these differences by paying individuals according to their credentials, knowledge, or job performance. When completed, pay structures should define the boundaries for recognizing employee contributions. Well-designed structures should promote the retention of valued employees.

Pay grades and pay ranges are structural features of pay structure. Pay grade group jobs for pay policy application. Human resource professionals typically group jobs into pay grades based on similar compensable factors and value. These criteria are not precise. In fact, no single formula determines what is sufficiently similar in terms of content and value to warrant groping into a pay grade. Pay ranges build upon pay grades. Pay ranges include minimum, maximum, and midpoint pay rates. The minimum and maximum values denote the acceptable lower and upper bounds of pay for the jobs in particular pay grades.

The midpoint pay value is the halfway mark between the minimum and maximum pay rates. (Chapter 1, P 21/22)

Describe the contextual influence that you believe will pose the greatest challenge and the contextual influence that will pose the least challenge to companies competitiveness and explain why. I think the market influence will post the greatest impact since our economy is not doing well. The other reason I say this is because major corporation or government organizations are not getting the support from the government or the fund that they use to get.

This is affecting all small business since they cannot afford to compete with the bigger companies. The major corporation have been declaring or filing for bankruptcy since the stock market plummeted a few years ago. This is also a major reason why our employment rate has gone out the roof in recent years. It seems that the government is not trying to make things better since they are too busy trying to help other countries and also going out of the United States to purchase different supplies and oil.

I feel that the labor unions will pose the least challenges since they do all the negotiations for the employees and tend to work with the companies within reason of course. The unions normally seek good benefit packages for their employees and also negotiate for their status in the companies but at the same time if the companies lets them know that they are willing to work with their demands then the unions will work with them even if they cannot get that big raise that employees look for or that big benefits package. (Chapter 2, P 47, 48, 49/50)

Describe when subjective performance evaluations might be better (or more feasible) then objective ratings. It is better when using the trait systems. Essentially, trait assessment focuses attention on employees rather than on job performance. The rating is inherently subjective, such as customer service representative or sales representative and is based on the evaluator’s judgment, intuition, and feelings, e. g. , attitude, cooperativeness, initiative, aggressiveness, flexibility, friendliness, and openness. Informal performance reviews depend primarily on subjective measures. Chapter 3, P 65/66)

Describe under what conditions profit sharing plans are not likely to motivate employees. There are two main disadvantages associated with profit sharing plans. The first one directly affects employees; the second affects companies. Profit sharing plans may undermine the economic security of employees, particularly if profit sharing represents a sizable portion of direct compensation. Because company profits vary from year to year, so do employees’ earnings. Thus employees will find it difficult to predict their earnings, which will affect their saving and buying behavior.

If there is significant variability in earnings, a company’s excellent performers are likely to leave for employment with competitors. The turnover of excellent performers certainly represents a significant disadvantage to companies. Employers also find profit sharing programs to be problematic under certain conditions. Profit sharing plans may fail to motivate employees because they do not see a direct link between their efforts and corporate profits. Hourly employees in particular may have trouble seeing this connection because their efforts appear to be several steps removed from the company’s performance.

For instance, an assembly line worker who installs interior trim (e. g. , carpeting and seats) to automobiles may not find any connection between his or her efforts and the level of company profits because interior trim represents just one of many steps in the production of automobiles. (Chapter 4, P 97)

Base on your knowledge of pay-for-knowledge pay concepts, describe three jobs for which this basis for pay is inappropriate and explain why.

  1. Clerical job
  2. Retail Store
  3. Supervisory
  4. Pay-for-knowledge pay programs represent important innovations in the compensation field.

Pay-for-knowledge pay systems imply that employees must move away from viewing pay as an entitlement. Instead, these systems treat compensation as a reward earned for acquiring and implementing job-relevant knowledge and skills. Advocates of pay-for-knowledge pay programs offer two key reasons that firms seeking competitive advantage should adopt this form of compensation: technological innovation and increased global competition. Based on this I believe that is the reason for the three jobs mentioned above basis for pay is inappropriate. (Chapter 5, P 106)

Software Associates Case Study

Software Associates Executive Summary Software Associates was founded by Richard Norton in 1990 in order to perform system integration projects for clients. During the rapid technological growth of the 1990’s the company grew and prospered. Annual revenues exceeded $12 million, and profit margins were generally between 15%-20%. Their services include a contract business which offers clients experienced consultants to implement personalized IT tools and solutions.

However, in 2000, founder and CEO of Software Associates, Richard Norton, had an urgent and tough question to answer; with higher than forecasted revenues, why is their bottom line less than half of what they had budgeted? Variance Analysis Report In order to perform a variance analysis report Jenkins calculated the actual revenues and expenses and found the difference which was $296,610 in profits. Then Jenkins did the same with budgeted values and found the budgeted profits to be $606,350. The variance amount in turn is $309,960 under budget.

Also, the variance amount for revenues is $32,100. This number is favorable due to the fact that they made more than what they had budgeted for. But on the contrary, the variance amount for expenses was $342,060, which was unfavorable because they spent far more than what they had budgeted for. This information would not be sufficient in order to explain to Norton why their profit percentage is nearly half of what they budgeted. This variance analysis report only shows the raw numbers and not any details to why they spent more on expenses than what they budgeted.

Jenkins would have a difficult time explaining details to why they went over budget. She would need to show him a detailed expense report of the budgeted items and the actual amount they spent on the items. Then she would have to clearly define which items went over budget and why. This variance analysis report would not help Jenkins in the 8 am meeting she has would need to provide more information. Preparing the Budget: Variance Analysis Report In order to provide more information to Norton, Jenkins will need to perform a variance analysis report.

Jenkins would be required to use the numbers provided in Exhibit 2. She will use the numbers on the budget and actual income statement to identify revenue quantity, which is provided in number of hours. She will then identify actual and expected quantity. The actual number of consultant hours exceeded the expected number of consultant hours. Then Jenkins subtracted the actual amount of hours from the expected amount of hours and then multiplied by the expected labor price of $90. Jenkins found that Software Associates made a total of $278,100 when providing the extra amount of hours billed.

This is favorable for Software Associates if the billing rate was $90 as expected; however the average rate per consultant amounted to $83. 69. Next, Jenkins determined the average billing rate variance by subtracting the actual price from the expected price. She then multiplied the difference in price and the quantity of work done. Jenkins found that they had a deficit of $246,090. This is unfavorable because Software Associates is losing money due to the actual rate drop from $90 to $83. 69. When Jenkins compared the variance of both quantity of hours and hourly rate, this gave her the total revenue variance of $32,100.

The total revenue variance is also the difference between the actual revenue and expected revenue. Over all, it is favorable that Software Associates created more revenue. Jenkins then determined whether or not the additional revenue would cover the additional costs incurred for the excess consultants. Jenkins used the same method for consultant expenses. By subtracting the actual number of hours supplied (50,850) from the budgeted number of hours supplied (47,250) and multiplying the expected costs, $37, Jenkins found a cost of $133,200. $133,200 is the amount they paid over the expected cost due to the increase in actual labor.

Next, Jenkins took the actual cost of $39. 90 and subtracted the expected cost of $37 then multiplied the actual amount of labor hours, 50,850. This amounted to $147,465. This is the extra amount Software Associates paid due to the labor cost change. The two numbers, $133,200 and $147,465, equal $280,800. The difference in consultant salaries cost from actual to expect cost is $280,800. Overall operating expense is broken down into two categories, actual and expected. Subtract the actual operating expense, $938,560, from the expected operating expense of $877,300 to get the variance of $61,260.

This amount is unfavorable. Jenkins found the total expense variance by completing the same equation. She subtracted the expected total expense from the actual total expense. The total expense variance was found to be $342,060. The extra hours worked created more costs than the extra revenue acquired. This puts the company in an awful position. The budget was not planned out very well. The price of the billed labor decreased while more labor was done and less was billed for. This is an equation for disaster as you can see.

More planning must be taken when figuring out a budget and Software Associates must stick strictly to the budget for reasons like this. Numbers can add up quickly. Expense Analysis: Spending and Volume Variance Analysis of Operating Expenses Jenkins then needed to analyze the expense analysis. Many of the expenses for Software Associates were not entirely fixed costs or variable costs. Rather, many of the expenses were a combination of fixed and variable costs. Therefore, Jenkins evaluated the overhead of the company and prepared Exhibit 3, which shows her judgment about each expenses degree of variability.

Due to the increased expenses per consultant, it is also important to study how costs change with the additional consultant. In order to examine the relationship of overhead costs and number of consultants, Jenkins found the amount of the budget which was deemed variable and which was deemed fixed. The budgeted variable amount was obtained by multiplying each expense’s budgeted amount by the percent in which was expected to be variable. Then, she subtracted the budgeted amount from the budgeted variable amount to find the budgeted fixed amount. These calculations are shown in Exhibit 3A.

Next, Jenkins took numbers and calculated the spending variance and volume variance. In order to perform a spending variance, she subtracted the actual amount spent from the budgeted amount. In this case the actual amount spent was $938,560 and the forecasted expenses totaled $877,300. After subtracting those numbers she found that the spending variance was $61,260. This is an unfavorable outcome of the quarter and can be mostly attributable to the eight extra consultants that were hired. The volume variance is determined by subtracting the budgeted quantity from the actual quantity and then multiplying the cost per unit.

In this case, the expected number of consultants was 105 but the actual number of consultants was 113. To determine the cost per consultant, she took the total variable cost [$525,000] and divided it by the actual number of consultants [113] and got $4,646. Therefore by multiplying $4,646 by 8 Jenkins found the volume variance of $37,168. This is unfavorable and when compared to the spending variance, she determined that one of the major faults in Software Associate’s expenditures for the quarter was hiring the extra eight consultants which were not budgeted for.

Billing Percentage: Analysis of Revenue Change After analyzing the expense analysis, Jenkins wanted to understand why the actual number of consultants was nearly 8% higher than the budgeted amount when revenues only had increased by 1%. Jenkins knew if she viewed the budgeted amount of hours allocated for consultants versus the actual hours spent towards consultants she would be able to determine if the consultants were being less productive. First Jenkins viewed the billing percentage by analyzing how much the consultants were billed for versus how much they were expected to be billed for.

The consultants were billed for 39,000 hours when they supplied 50,850 hours creating an actual billing percentage of 76. 7%. The budget, however, projected to bill for 35,910 hours when actually supplied 47,250 hours creating a 76% billing percentage. Jenkins noticed there was a difference of 3,600 hours that were billed and supplied for which was not allocated in the budget. Each of these numbers was found by Jenkins referring to Exhibit 4. Jenkins also noticed that the average billing rate per consultant decreased from $90 to $83. 69.

Overall Jenkins saw that if she took the actual hours supplied [50,850 hours] and multiplied it by the actual billing percentage [76. 7%] and then multiplied that by the actual cost per consultant [$83. 69] that there was an actual cost of $3,264,073. 1955 spent towards her consultants. Jenkins also noticed that when she recreated this same equation but in retrospect of Software Associates budgeted amount she found that they were only budgeted to spend $3,231,900. 00 on consultants. This was found by taking the budgeted hours supplied [47,250 hours] and multiplying it by the actual billing percentage [76. %] and then multiplying that by the actual cost per consultant [$90. 0]. (Each of these numbers was found by Jenkins referring to Exhibit 4. ) After analyzing the actual amount versus the budgeted amount of money Software Associates allocated towards consultants, Jenkins noticed there was a $32,173. 1955 increase in spending this quarter. Jenkins noticed that the billing percentage increased and the rate per consultant decreased. Based on the increase of consultants allocated and the increase in salary and fringes per consultant, Jenkins realized she is paying more for consulting.

Their work does not appear to be more productive in the grand scheme of things. Software Associates are paying a lot more money for more consultants and not receiving a high enough overall revenue increase. Jenkins further analyzed Software Associate’s spending towards their increase in consultants by directing her attention towards the increase in hours supplied by the consultants [3,600 hours= 50,850-47,250] and multiplied that by the expected billing percentage [76%] and multiplied that by the expected rate per consultant hour [$90] and there was a variance of $246,240. 0. $246,240. 00 defines the amount that would have been spent per consultant. This is an unfavorable outcome for Software Associates because they are spending a considerable amount of money and not receiving a high return on investment per consultant. The quantity of work is not benefiting the company enough to spend more money on maintaining that number of consultants. Lines of Business: Analysis of Actual versus Budgeted Revenues, Expenses and Margins Appendix Exhibit 1: Exhibit 2: Budget and Actual Income Statement Q2 2000 [pic] Exhibit 3: Expense Items: Budget Q2 2000 | |  |  |  |  | |  |  |  |  |  | |  |Administrative and Support Staff |225,000 |191,250 |80% | |  |Information Systems |  |126,200 |120,000 |80% | |  |Depreciation |  |23,400 |22,700 |0% | |  |Dues and Subscriptions |  |11,800 |13,100 |80% | |  |Education and Training |  |36,200 |38,900 |80% | |  |Equipment Leases |  |  |23,500 |22,440 | |  |Office Supplies |  |86,200 |89,600 |80% | |  |Postage |  |  |27,300 |24,700 | |  |Telephone |  |  |40,000 |38,500 | |  |Utilities |  |  | $ 26,600 | $ 24,000 | |Advertising and promotion | 22,100 | 15,100 |0% |0  |15,100  | |Admin. and support staff | 225,000 | 191,250 |80% |153,000  |38,250  | |Information systems | 126,200 | 120,000 |80% |96,000  |24,000  | |Depreciation | 23,400 | 22,700 |0% |0  |22,700  | |Dues and subscriptions | 1,800 | 13,100 |80% |10,480  |2,620  | |Education and training | 36,200 | 38,900 |80% |31,120  |7,780  | |Equipment leases | 23,500 | 22,440 |25% |5,610  |16,830  | |Insurance | 33,600 | 32,200 |0% |0  |32,200  | |Professional services | 39,500 | 34,700 |0% |0  |34,700  | |Office expense | 42,100 | 36,550 |100% |36,550  |0  | |Office supplies | 86,200 | 89,600 |80% |71,680  |17,920  | |Postage | 27,300 | 24,700 |80% |19,760  |4,940  | |Rent – real estate | 117,260 | 117,260 |0% |0  |117,260  | |Telephone | 40,000 | 38,500 |100% |38,500  |0  | |Travel and entertainment | 57,800 | 56,300 |100% |56,300  |0  | |Utilities | 26,600 | 24,000 |25% |6,000  |18,000  | |Total | 938,560 | 877,300 |  |525,000  |352,300  | |Number of consultants |  |  |  |113  |  | |Budgeted variable/consultant |  |  |  |$4,646  |  |

Exhibit 3B: Expense Items Spending Variance and Volume Variance: Budget Q2 2000 Calculate spending variance from flexible budget |Actual Expenses |Budgeted Fixed |Budgeted Variable per Consultant |Actual Number of Consultants |Flexible Budget |Spending Variance |Favorable/ Unfavorable? | | |$938,560 |$352,300 |$4,646 |113 |$877,300 |$61,260 |Unfavorable | | | | | | | | | | |Calculate volume variance | | |Actual Number of Consultants |Budgeted Number of Consultants |Budgeted Variable per Consultant |Volume Variance |Favorable/ Unfavorable? | | | | |113 |105 |$4,646 |$37,168 |Unfavorable | | Exhibit 4: Budget and Actual Income Statement: Q2 2000[pic]

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