BVE Case Study: ABC, Transfer Pricing & Balanced Scorecard

[Part I]

 A CASE STUDY ASSIGNMENT Balogun Vision Express (BVE) – Case Study

Balogun Vision Express (BVE), established in 1999, specialises in the production and sale of premium eyecare products, including spectacles. The company operates through two independent divisions: the BVE Manufacturing Division and the BVE Retail & Clinic Division. At its core, BVE is driven by a commitment to maximising shareholder value.

1. The BVE Manufacturing Division

The BVE Manufacturing Division is responsible for producing and distributing eyecare products across both internal and external markets. Company policy dictates that priority be given to fulfilling orders from the BVE Retail & Clinic Division, ahead of external sales. Transfer pricing is set at the marginal cost of production, a practice that has sparked contention. Management within the Manufacturing Division has repeatedly challenged this policy, arguing that it is inequitable and demoralising, as it effectively denies the division the opportunity to generate profit

2. The BVE Retail & Clinic Division

The BVE Retail & Clinic Division is dedicated exclusively to serving the public, providing clinical lens prescriptions and dispensing ready-to-wear prescription spectacles. Customers benefit from a comprehensive eyecare experience, which includes professional consultations and tailored spectacle solutions. The division sources its retail materials both internally and externally, ensuring flexibility and quality in supply. It boasts a diverse portfolio of approximately 500 frame styles, varying in material, shape, colour, thickness, and brand—including Wiley, Uvex, Tifosi, Gunner, Global Vision, and its own Elegant-X label.

Lenses offered by the BVE Retail & Clinic Division are custom-made, meaning no inventory is held except for the company’s own Elegant-X brand. Customers undergo a clinical consultation to determine the appropriate lens prescription. If a customer opts for a brand other than Elegant-X, lenses are sourced on a just-in-time basis from external suppliers.

The Elegant-X brand distinguishes itself through competitive pricing, swift assembly, and prompt delivery. Lenses are categorised by material—glass, plastic, or polycarbonate—and by functionality, including single vision, bifocal, progressive, trifocal, toric, and cylindrical types. Customers can further tailor their lenses by selecting from a range of technologies, thicknesses, and coatings, such as anti-reflective layers, UVA/UVB protection, adaptive lens technology, and polarisation treatments.

Operational overheads in this division stem from a variety of activities, including scheduling patient appointments, updating customer records, assisting with frame and lens selection, placing lens orders, dispatching frames, inspecting and storing lenses, assembling spectacles, processing payments, and completing bookkeeping documentation.

3. Management

Under the leadership of Dr Mabika Chan—an accomplished and seasoned entrepreneur—BVE’s management has adopted a product differentiation strategy, placing strong emphasis on delivering premium eyecare services. The company relies heavily on customer satisfaction, testimonials, and word-of-mouth referrals to build its reputation as a trusted eyecare retailer and clinic. However, this approach has yet to yield the desired levels of profitability.

A key challenge lies in the management’s limited understanding of its target market and the most effective channels for communicating the company’s value proposition. This shortfall is largely attributed to a lack of relevant and timely management information. Many supplier relationships have been initiated by the suppliers themselves, with little data available to guide strategic selection. Management has recently expressed growing interest in acquiring such insights to inform future decisions.

Inventory primarily consists of frames sourced internally, complemented by lenses supplied either by the BVE Manufacturing Division or external vendors. However, current inventory levels are unknown, and the absence of reliable data hampers effective inventory planning and ordering.

Since its inception, BVE’s pricing model has remained unchanged. Each pair of spectacles is priced individually, based on a fixed consultancy fee, lens cost, frame cost (at transfer price if sourced from BVE Manufacturing Division), and customisation charges. A discretionary markup is then applied to determine the final price. Sales staff may offer a subjective discount of between 5% and 15%, depending on the customer’s reaction to the quoted price. The company maintains its own pricing strategy and does not respond to competitor pricing trends.

4. Service Quality

BVE positions itself as a premium eyecare provider, offering high-quality services that justify its pricing strategy. Customers receive comprehensive support in selecting suitable spectacles, with access to an exclusive range of high-grade products. The company employs advanced diagnostic technology during eye consultations and conducts rigorous inspections of customised lenses to minimise errors and ensure precision.

An enhanced level of service is delivered when customers engage with both the retail division and the clinic’s eye care professionals, reinforcing BVE’s reputation for excellence and personalised care.

5. The Current Costing And Reporting System

Currently, BVE outsources its accounting function, receiving a monthly management report followed by a review meeting between the accounting firm and Dr Mabika Chan. Overheads and period costs are distributed evenly across the annual sales volume, with no overhead absorption  rates applied to allocate indirect costs to individual products. As a result, the reports lack detailed product costing and profitability analysis, leaving management unaware of which customer segments or product lines contribute most significantly to overall profit.

Moreover, the monthly accounting report fails to deliver the depth of insight required to support key business decisions. It offers insufficient data to inform pricing strategies, evaluate supplier performance, plan capacity, identify cost-saving opportunities, assess internal performance, and guide both tactical and strategic initiatives. This lack of robust financial intelligence is increasingly recognised as a barrier to effective decision-making across the organisation.

6. Proposed Costing And Performance Reporting Systems

In response to growing dissatisfaction with the company’s existing management information systems, Dr Mabika Chan recently enrolled in a short executive course at his local university. The programme explored key principles of cost management, including Activity-Based Costing (ABC) and strategic performance evaluation through the Balanced Scorecard framework. The training, designed for both manufacturing and service-based organisations, sparked Dr Chan’s interest— particularly in the potential of ABC to enhance cost control, product and customer profitability analysis, supplier assessment, and pricing strategy.

However, he left the course uncertain about how ABC could be effectively implemented within a retail environment. In contrast, he was deeply inspired by Kaplan and Norton’s Balanced Scorecard and the concept of the Strategic Map, recognising its potential to align operations with long-term strategic goals.

Notably, the course did not address transfer pricing—a critical issue now facing the business. Dr Chan is increasingly troubled by a memo from the divisional manager of the BVE Manufacturing Division, who has threatened to resign over the current transfer pricing policy. Dr Chan is seeking urgent guidance to resolve this matter and steer the company towards more informed, data-driven decision-making.

Required:

(a). Examine the process of introducing and embedding an Activity-Based Costing (ABC) system within an organisation, and offer guidance on its relevance and practical application in the retail service sector. Drawing on academic literature, evaluate how ABC can strengthen cost control, illuminate product and customer profitability, inform supplier assessment and selection, and support more strategic pricing decisions— specifically within the context of the BVE Retail and Clinic Division.

(30 marks)

(b). Provide a concise and critical evaluation of the concept of transfer pricing, and assess the suitability of BVE’s current transfer pricing policy from the standpoint of the Manufacturing Division manager. Consider the implications of the existing approach on  divisional motivation and performance, and recommend strategic adjustments to the transfer pricing framework that would incentivise divisional managers to make more commercially sound and value-driven decisions.

(25 marks)

(c). Develop a strategic map tailored to the BVE Retail and Clinic Division, illustrating the alignment between operational activities and long-term organisational objectives. Critically examine how the Balanced Scorecard framework can enhance strategic management insight for Dr Mabika Chan and his leadership team by leveraging the strategic map. You may choose to embed the map within the main body of your assignment or present it separately as an appendix.

  (25 marks)

[Part II]

Brunai Scientific Industries Limited (BSI) operates a state-of-the-art manufacturing facility in South Africa, producing a single, specialised product known as Vit-X, which is used in the aerospace sector. The company employs a robust budgetary control system to monitor and manage operational performance, primarily through variance analysis techniques. BSI adopts a standard marginal costing system, allowing for precise tracking of cost behaviour and contribution margins.

The following figures have been extracted from the annual budget documents:

PRODUCTION DATA – Vit-X

Standard cost per unit of Vit-X

		£
Selling price per unit		180
Material – 6kg @ £10 per kg		60
Labour – 5 hours @ £9 per labour hour		45
Variable overhead – 6 Machine hours @ £5 per hour		30
Total variable production cost		135
Contribution per unit		45

Based on the standard cost data provided, the following performance report was submitted to management for the month of June 2025.

		Budget	Actual
Output		1,100	1,100
		£	£
Sales		198,000	211,200
Materials		66,000	69,240
Labour		49,500	57,820
Variable overheads		33,000	35,000
Total variable costs		148,500	162,060
Total contribution		49,500	49,140

The Production Manager of BSI has expressed dissatisfaction with the performance report, stating:

“The report does not provide my department and I with sufficient information to make informed decisions. While it’s clear that costs are higher and contribution is below budget, the report fails to pinpoint where and why these variances have occurred. We need greater transparency to identify specific areas of responsibility and understand the operational drivers behind the figures.”

As a student of Strategic Management Accounting, you have been tasked with preparing a performance statement tailored to the specific needs of the Production Manager. To support this, you have gathered the following information:

Actual costs incurred in the period.

• Materials: 5,770kg were purchased and used
• The standard rate plus a 5% pay rise was paid for 5,900 actual hours of which 460 hours were idle time.
• Variable overhead: 6,400 machine hours were used.
• Produced and sold 1,100 units for £211,200.

Required

Prepare a comprehensive statement that reconciles the budgeted contribution with the actual contribution for the relevant period. The statement should include a detailed breakdown of all variances—both favourable and adverse—highlighting the specific cost and volume factors that contributed to the deviation.

(12 Marks)

Following the reconciliation, provide a critical analysis of the significance of these figures in the operational management of Brunai Scientific Industries Ltd (BSI). Your discussion should explore how the variances reflect on departmental performance, resource utilisation, and strategic alignment.

(4 Marks) Finally, propose practical and evidence-based recommendations to address any four adverse variances, focusing on areas such as cost control, process efficiency, workforce deployment, or supplier management.

Check Solved Accounting Answers: Experts Answer on Above Management Accounting Question

Activity based costing at BVE

The main feature of activity based costing is that it allocates overheads on the basis of activities and not on the basis of volume, and it leads to improved cost accuracy.

Process of implementation

The implementation of activity based costing requires the identification of major activities followed by assigning cost drivers to each activity, performing the collection of data and assigning overheads on the basis of usage of activity, and finally analysing the cost per service or customer segment.

Relevance to BVE

In the given case scenario of BVE, this activity based costing is highly relevant because it helps in identifying the profit table product lines and customer groups, and thereby improves pricing accuracy and improves cost control. The benefits of ABC to BVE also includes the better opportunity to evaluate suppliers through true cost insights and it also allows for data driven strategic decisions which will help in efficiently managing the operations.

Transfer pricing evaluation

The current issue indicates that BVE manufacturing sells lenses to retail and clinic at marginal cost. It leads to a lower level of motivation and perceived unfairness. The problems identified are the inability of the manufacturing division to earn profit on internal sales, and it therefore creates an unpleasant situation leading to lower level of efficiency. It also reduces divisional autonomy and accountability.

Recommendations

It is recommended to adopt market based Transfer pricing which would reflect the fair prices. It is also recommended to consider using negotiated pricing to balance the interest of divisions, and finally it should also consider linking the transfer pricing to performance measures.

Balance scorecard and strategic map

The four perspectives of balanced scorecard as applicable in case of BVE are:
Financial: It helps in improving profitability and achieving cost efficiency.
Customer: Better service quality and faster delivery leads to enhanced customer satisfaction.
Internal processes: Helps in streamlining inventory control and ordering systems.
Learning and growth: Staff training and investment leads to better management of data systems.
Strategic map: Improve staff training leads to efficient operations, better service quality, customer satisfaction and ultimately increased sales and profit.

Brunai Scientific Industries variance analysis

The sales price variance is identified as favourable at 13200 leading to higher selling price. The material cost variance is negative at 3240 which increases the material cost and leads to inefficiency.
The label cause variance is also negative which indicates increased wage rate and idle time.
Variable overhead variance is also negative at 2000 showing excessive machine hours used.

Significance

The analysis indicates cost overruns and inefficiency in the production process. It helps management in identifying the operational issues such as wastage and idle labour, and thereby allows for better resource planning and accountability.

Recommendations

It is recommended to improve the material procurement process so that cost can be controlled. A close monitoring of labour productivity is essential along with the reduction in idle hours. The equipment needs to be upgraded to achieve operational efficiency, and there should be introduction of variance reporting to ensure department level accountability.

Disclaimer: This answer is a model for study and reference purposes only. Use it for your learning to do your assignment on your own. Please do not submit it as your own work.

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