Compagnie du Froid Analysis Essay

MemorandumCampagnie Du Froid is a summer ice-cream melodic phrase erected in 1985 by the father of Jacques Truman. In 2007, after the passing of his father, Jacques Truman took over the business and emphasized an aggressive exploitation strategy. By 2009, Campagnie Du Froid was a market leader in the eastern part of France, northeastern coast of Spain, and Yankee Italy. Each piece had its own passenger car and the main headquarters was located in Paris. Jacques believed de telephone ex lurchizing the decisiveness making as much as possible. Each parting had its own manufacturing, marketing, distribution and gross revenue organization. The central office took c be of accounting, developing of bracing intersection points, and sharing of learning experiences across the regions. Each year Jacques met with the regional motorcoachs to discuss a proceeds plan for each region. The gain ground plans laid out regional goals for the approaching year and were used as a tool to monito r performance. During the summer months, a get argumentation every two weeks was generated and sent to Jacques in orderliness to detect any major difficultys.The France region is reckoning by Jean Pinoux and had performed exception anyy well in 2009 with cyberspace above budget and gross sales assortment magnitude by 20% from the previous year. Jean had stumbled across a new source of revenue in which he helped deliver packaged food for regional producers using the companys refrigerated trucks. The additive salute to provide the overhaul was very low and was seen by Jean as a dim-witted way to increase revenue. Jacques was surprised by Jeans new initiative, but acknowledged the profit po 10tial in the distribution business. Pierre Giraux is the coach of the Italian region. The 2009 sales goals were met and Pierre had expanded business into most of the western Italian coast, but suffered from higher wages and lower efficiency than expected, which hindered performance o f the region.Andres Molas is the handler of the Spanish region and his performance had been outstanding up until 2009. There had been many problems that sprung up in 2009 do the performance of the Spanish region to decline. The firstproblem was the new machines werent working correctly until belatedly August which endeavord them to run out of capacity several times. The Spanish division had to import product from the cut division at a bump off price of full cost plus 5% profit for the manufacturer. On top of that, the Spanish division had to absorb expenses of people traveling to France to fit the Spanish publicity to the French production line. Lastly, in that location were unseasonably cold temperatures that had driven down tourism and demand. As a result, Andres had to cut prices in order to stimulate demand and keep with competition.Traditionally, each manager was given the resembling bonus of 2% of corporate profits, but the results in 2009 challenged the fairness of th is evaluation system. The Spanish region performed extremely ugly and had driven down companys profits to the lowest its been in ten years. Jacques thought it was unfair for the French and Italian managers to pay for the problems of the Spanish region but wasnt real Andres Molas was to blame for the poor results. Jacques Truman needs to make many decisions regarding the evaluation and performance of each region.In order to properly evaluate the difference amongst the expected profit versus the actual profit in the Italian region, a causal abbreviation was conducted on the Italian region. The causal analysis in testify 1 allowed us to better understand the Italian business. First, we evaluated the impact of the change in sales saturation. The sales volume pas seul (Flexible budget in Euros Static Budget in Euros) produced a sales naval division of 119 for trumpery Cream sales and 34 for Specialty sales this represented a profit partitioning of 58. slice the sales volume variance is important, it is also important to understand the amount of sales growth that is attributed to the temperature change versus actual performance of the business. There was 19 worth of growth strictly from the change in temperature surrounded by both ice cream sales and specialty sales. The profit side of the causal analysis resulted in a 8 variance attributed to the temperature change and a 50 variance related to performance which resulted in a total volume for profit increase of 58.The change in prices also had an impact on the Italian regions expected and actual profit because the 7 total sales variancerepresented an increase of 7 profit for the actual profit. The 7 variance was computed by the well-heeled 20 variance for ice cream sales and an admonitory variance of 13 for specialty sales (20-13=7). This proves that the Italian region can charge slightly more than for their ice cream sales given the increase in demand, while the increase in demand of the specia lty product could be more attributed to the drop in price. Overall, the change in pricing came out to make a confirmatory impact on the Italian regions profit. The cost of raw materials impacted the actual profit by the price variance and the cadence variance of the direct materials. Using the level 3 analysis, it was resolute that the price variance was favorable 46 and the quantity variance was unfavorable 17 which represented a flexible budget variance of favorable 29. This impacts the profit because the Italian region was very efficient with their be of direct materials, but the Italian region came up short in their manufacturing efficiencies as they experienced an unfavorable quantity variance of 17.An overall favorable flexible budget variance of 29 represents a dogmatic impact on the profit for direct materials. The cost of get impacted the actual profit through the rate variance and the efficiency variance of the direct labor. Using the level 3 analysis, it was calcul ated that there was an unfavorable rate variance of 2 and an unfavorable efficiency variance of 11. This impacts the profit because the Italian region paid more for their labor than expected, which turned into an unfavorable variance of 2 this variance is related to the changes in the prices of labor. Also, the Italian region was not as efficient with their labor forces which showed in the unfavorable efficiency variance of 11 this is related to the labor efficiency of the workforce.Overall, the impact of the direct labor was negative to the profit as the Italian region was both inefficient and paid more per labor hour than estimated. The fixed cost impacted the actual profit by having an unfavorable variance of 20. This shows that the Italian region was slightly small-minded cost conscious with some of their fixed costs and this negatively impacted the profit. After considering all of the antithetic components of the profit of the Italian region through a causal analysis, the It alian region experienced a favorable variance of 58 on their overall profit.The manager of the Italian region should be evaluated congenator to multiple criteria to gain a holistic view of his regions performance. In order to differentiate the three regions together, causal analyses were performed for each region, see Exhibits 1-3. The first crucial account should be sales growth, and this goes for all regions, not just the Italian region. Sales growth year-over-year is crucial to any business because businesses become more expensive to run as time goes on ascribable to inflation. It is best to look at sales quantities relative to changes in price because if you were to just look at changes in quantity sold, the manager could steeply decrease the price just to make his or her performance look noticeableer. The next crucial measure should be price and quantity variance. Price variance shows how strong of a negotiator a manager is with suppliers, which can result in huge cost pa rsimoniousnesss. Quantity variance shows how efficient workers are in producing products. A favorable quantity variance evidences workers are not creating much scrap, and therefore are saving money.Another key indicator of manager performance is labor efficiency variance because it shows how productive workers are when producing product. A strong labor efficiency variance shows that the manager is staying on top of workers and demanding consistently strong performance from them. We do not believe that much weight should be put on labor rate variance because the manager often has little control due to unionization and government regulations indoors the area of operation. The above measurements of effectiveness of the Italian region and more specifically, the Italian manager can be found in Exhibit 1 which breaks down the relevant variances in determining the appropriate evaluation of the Italian manager. The more specific-scope variances mentioned are shown in Exhibit 6. All of the above tie into the bigger see to it variances, which are the flexible-budget variance and the sales-volumes variance, which are shown in Exhibit 5 for Italy in 2009. These then roll into the static-budget, which determines if a manager met the profit plan for the region, which is shown in Exhibit 4 for Italy in 2009. This gives a rather fainthearted view, and can sometimes distort how a manager truly performed unless the variances that roll into it are investigated further.Both the manager of the French region and Spanish region should be judged onsimilar criteria as the Italian region manager besides a few small nuances that France and Spain have in their operations. All of the measurements mentioned above in analyzing the Italian region managers performance should be used for France and Spain, as these measurements provide the corresponding value no matter the region. A causal analysis for both France and Spain were conducted and can be found in Exhibits 2 and 3, respectively. For France, the more specific scope variances, flexible-budget and sales-volume variances, and the static-budget variance are shown in Exhibits 9, 8 and 7, respectively. For Spain, the more specific scope variances, flexible-budget and sales-volume variances, and the static-budget variance are shown in Exhibits 12, 11 and 10, respectively. Frances revenue from distribution should be walk outn out of all variance analyses it is considered in because the other regions do not have this service in place, and it would distort the view of relative performance.Also, Frances revenue should not include the 5% markup for conveyancering product to Spain because this is an intercompany sale and is not ground on Frances customer demand but instead is based on Spains. We believe it is therefore necessary to remove the 5% markup from the purchase price for Spain because this forget cause a heavily unfavorable price variance for direct materials. We feel that it is best to instead take this as a qualitative judgment in the managers performance in the aesthesis that sales are outpacing inventory. It can also be noted that competitors have generally shown to steeply decrease market prices when demand weakens, but we feel this is best to account for qualitatively instead of through what seems to be an arbitrary measure of change in sales relative to temperature.It should be the regional managers job to address the decrease in the demand instead of have it be excused due to temperature change. In evaluating performance, it can be noted that the conditions did not allow for demand as strong as in other regions, but should not allow for a managers performance to be comparable to a region with widely stronger sales. Please note the standards used for Compagnie du Froid are listed in Exhibit 13.Based on our analysis of each of the regions performance for the year of 2009 and other important information, we believe that Italys regional manager did the best job. First and foremost , the region exceeded profitexpectations are set forth in the profit plan, as shown in Exhibit 6. Italy also earned favorable variances relative to both the flexible-budget variance and the sales-volume variance. The more specific-scope variances were strong as well with the merely major weakness being in the quantity variance for ice-cream, but the strength of the other variances outweighs this one significant weakness that can easily be improved through training or overall experience.The direct labor efficiency variance is the only relatively weak variance, however Mr. Trumen noted that new machines were causing labor efficiency issues. It was mentioned that this was included in the profit plan already, however it can be expected that this variance will fluctuate until the equipment begins trail normally. Revenue growth also exceeded expectations, which as mentioned earlier, is key to growing any business and maintaining positive property flows.There are three main problems tha t Jacques Truman appears to be facing. The first problem involves whether or not to change how much each manager receives as a bonus. Each managers bonus is presently calculated at a fixed 2% of corporate profits but after the poor performance of the Spanish division during 2009 has Jacques considering new ways to evaluate each mangers bonus. Jacques is considering whether to cerebrate each managers bonus to a performance measure such as a profit plan, revenue growth, or some overall economic measure of results. A second problem is how to calculate transfer pricing from one division to another. The Spanish division was charged full cost plus a 5% profit margin from the French division. Andres Molas believed this was way too much for a transfer price and in turn made his division look bad. Jacques needs to decide for on-going and future tense purposes on how to handle transfer pricing in case of a similar font happening again.The third problem involves whether or not to allow Je an Pinoux of the French division to embrace providing the distributing services to regional food producers. Jean claims the distributing services add extra revenue with very little additive cost. Jacques needs to decide whether Jeans claims of the distributing services are true. After careful analysis of all three problems, weve developed some recommendations for Jacques Truman to consider. Our first recommendation involves implementing a new way to calculate the performance bonuses managers receive at the end ofeach year. We dont believe that every manager should simply receive 2% of corporate profits. Each managers performances can be metric by a variety growth metrics and budget variances while also taking qualitative factors into consideration. The growth metrics that should be considered are things like sales growth year-to-year and sales quantities relative to changes in price. Variances that should be considered are price variance, quantity variance, and labor efficiency v ariance.Qualitative factors such as unseasonal temperature changes and intercompany transfer of product should also be taken into consideration. For reasons discussed earlier, we believe considering these metrics will give the most consummate view of each managers performance. Using these benchmarks will allow Campagnie Du Froid to calculate a more appropriate performance bonus for each manager. The second recommendation involves how transfer prices should be calculated between divisions. Assuming there are no capacity constraints at the French division because of the two new machines it just bought, transfer pricing should be set at the variable cost per litre of 2.76. When the French division has excess capacity, there is no opportunity cost to be lost and it should be inert for them to make these extra units for the Spanish division. Fixed costs dont need to be added to the transfer price because they will be incurred regardless and the 5% profit margin is unnecessary because a ll profits eventually go to corporate.This will cut transfer costs for the Spanish division by 0.77per litre and 459,000 total. This type of transfer pricing will be beneficial to the buying division in the future and allow it to spend less when it runs into these types problems. The third recommendation involves the new distribution arrangements that Jean Pinoux wants to engage in the French division. In 2009, revenues from distribution were 79,000. The incremental costs for delivery expenses were 47,000 and 3,000 for depreciation of the trucks. The revenues from distribution outweigh the incremental costs by 29,000 therefore we recommend the French division continues with the new distribution arrangements. We believe these recommendations will help Campagnie Du Froid become a more efficient and profitable company.