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Case Study

Bellaire Clinical Labs, Inc. (B)

Group 6
Subject: Management Control Systems
Roll No: Participants Name:
Assignment No: 5
p39017 Dinesh
p39069 Debashish Date of Submission: 03/01/2020
p39106 Shivangi
p39094 Prudhvi
p39030 Mukesh
Case brief:

The case is about Bellaire clinical Labs, Inc, a small, high-quality, privately owned independent
clinical laboratory located in Boston. Bellaire provides both routine and specialty testing
services to local physicians' offices, hospitals, and other companies. It however charges
differential prices for these patients to three types of clients: physicians(lowest), patients(highest)
& other parties (mid-range). The revenues of clinical lab testing industry in the US is $80 billion
and Bellaire is facing tough competition and there are price ceilings from Congress. So, Bellaire
has launched a campaign to differentiate itself. The company's net revenues have increased in
2016 but profit has not increased in same proportion as that of revenues. The case speaks about
cost variance and how the actual expenses have exceeded planned expenses.

Central Point of the case:

The case focuses on the variances between actual performance and standard performance. Even
tough revenues of Bellaire were more than the planned, process improvements have happened,
still the profit has not increased proportionally. This became concern for top management and
CFO along with operation managers are looking into the variance of the expenses to identify the
causes of the same.

Control Systems:
 Budget is one of the control systems in the case. The top management has made planned
revenue and budgeted expenses in 2016.
 Cost variance is another control system. Actual and planned labour costs, material costs
can be compared to measure efficiency of processes in the company.
 Sales price and volume variance is third control system discussed.
 Profitability ratio like NP ratio is another management control system. CEO asks the
CFO why net profit has not increased in same proportion as net revenue increase.
Learnings:
 Organisation should make budgets and track the variances between actual and planned
values to evaluate the performance of systems.
 Standard Costing is an important tool which organization which should be used to
evaluate cost variances.
 Proper incentives should be set up in an Organisation to achieve high level performance.
 Process improvements should be focused upon in an Organisation to reduce wastage and
improve operational efficiency.
 Organisation should carry out marketing campaigns to create brand value and
differentiate itself from competition.
 Organisation should develop competence to manage the competition.
 Policies of governments should be focused as they affect the profitability of an
Organisation (just as here fee schedule of Congress set price limits)