Case Study: Societa Rigazio

Strategic Planning and Budgeting

Submitted by:
Guillermo, Kryzel
Miolata, Cyrus Dann
Tadeo, Kevin Joshua
Santiago, Jose Carlo

April 24, 2017

I. Introduction
The case is all about a manufacturing company Societa Rigazio that
caters wide variety of metal products for industrial users in Italy and other
European countries. The head office is located in Milan and its mills in
northern Italy where 80 percent of the companys production volume
produced. The other 20 percent was produced by its two subisidiaries: one
in Lyon, France and the other one in Linz, Austria. This case provides an
in-depth discussion of flexible budgeting and appropriate determination of
overhead cost.

II. Background of the Study

III. Statement of the Problem

By reviewing the subsidiaries operations, the company found out that for
the first time in 12 years, there is a decrease in sales volume, excess
production capacity, rising costs, and a shortage of funds to finance new
investments. In order to what is the problem behind this issue and to
resolve this, the management in Milan decided to have more detailed
system of cost control in its mills, including flexible budgets for the
overhead costs of each factory.
Our analysis towards the case ought to answer the following questions:
A. Do you agree with Spreafico that 4,386.78 francs per ton is a
more meaningful standard for cost control than the normal cost
of 4,266.08 francs? Explain.
B. See exhibit 1. Which of these are likely to be controllable by the
foreman? What do you think the production supervisor should
have done on the basis of this report?
C. What changes, if any, would you make in the format of this
report or to the basis on which budget allowances are computed?
D. In developing the budget allowances, did Spreafico make any
mistakes that you think he could have avoided? Does his system
contain any features that you particularly like?

IV. Discussion

V. Conclusion
 In some case scenarios showed in the problem, Spreafico couldve
minimize the actual cost incurred since the company has operated below
standard volume which is 25 tons. It is understood in flexible budgeting
that if the plant manager needs to reduce one of the cost driver (volume
capacity), he should also directly decrease the budget throughout the
operation.
On the other hand, as a controller of Soceita Rigazio, Gino Spreafico
made a good decision to act immediately towards the falling sales yet
rising costs of production of the company. This in turn requires him to
make a more detailed system of cost control in companys mills and
flexible budgets for the overhead costs of each factory. On the new
system of cost control he proposed, it is favorable that cost drivers should
be allocated to each department depending on a certain activity only to
have a more accurate results. Unlike before, the company used to
accumulate overhead costs singlehandedly in both automatic and manual
operations which is obviously undesirable.
Another feature of the new system proposed by Spreafico which could
be beneficial is the use of Least squares regression. This mathematical
formula provides a maximum likelihood solution to determine an accurate
amount for fixed cost and variable cost instead of relying to sole
estimates and judgments.

VI. Recommendation