Executive Summary
For 2001, Agro reported a positive profit variance of $800K. However, given market conditions and other factors described below, this figure does not represent exemplary performance by this firm. Essentially, this positive variance is more about market growth and less about management performance.
Manufacturing efficiencies were solid at Krovar and Hyvar, beating budgeted cost levels. Manufacturing efficiencies at Karmex were poor, missing the budget.
Overall, Hyvar performed best; gaining 5% share in a flat market while showing a 93% performance to target (table 1). There are concerns about overcapacity which should be addressed.
Krovar showed gains in contribution margin, but analysis reveals that poor performance - most likely in the customer service division - resulted in an eroded share, and volumes significantly below expected, when adjusted for market growth.
The abysmal performance by Karmex reduced net income. They diverged from industry standard pricing by a full 10%, effectively buying market share that negatively impacted their contribution. Karmex has serious performance and strategy issues (table 2).
Agro should take this opportunity to conduct a detailed analysis of its operations and structure. Regarding its cost structure, Agro attributes manufacturing underruns from all production to this year. This had the effect of adding $58K to this year's profits. It is probably deceptive to add manufacturing variances on unsold goods to present year profit.
Though favorable market conditions have generated better budget performance than anticipated, it would be irresponsible to ignore some of the major issues this firm faces. When the market softens, the weight of immense overcapacity and poor customer s ...