Question

Assignment Details As a new senior accountant of Ferndale Rugs, Inc., an exotic rug manufacturer, you have taken on the new responsibility of variance analysis for the company. During your monthly analysis, the company's current performance report reveals a relatively large and unusual sales volume. This is considering the past three quarters of operating in a deficit, the sales volume is favorable but the sales price variance is unfavorable. Now the CEO has asked for a recommendation on how the organization can become a lean organization and whether the theory of constraints can be implemented. • What recommendations would you give the CEO on how to become a lean organization and how the theory of constraints could be implemented?

Answer 1

The CEO has to analysis the price structure of the product in the market to create the value in the customer field. As there does not exists any problem in selling the volume as the Sales Volume is large and favorable. The sales price variance is unfavorable ie. the sales price is reducing. The company has to keep their products price according to the standards and do not provide for the discounts to increase the volume. The products quality should be maintained, so that the customer should value the product and the company at large.

The implementation of the theory of constraints would be possible with the analysis of the factors which are affecting the prices of the products like product’s cost, the customer’s demand, the utilities, products publicity, educating the customer with products quality, etc. The analysis would able to bring out the real affecting factor to the declining prices. The improving the raised up factor, so that the prices of the products could be appreciated.