Compagnie du Froid Analysis Essay

MemorandumCampagnie Du Froid is a summer ice- drub line of products founded in 1985 by the father of Jacques Truman. In 2007, after the passing of his father, Jacques Truman took over the commerce and emphasized an aggressive growth strategy. By 2009, Campagnie Du Froid was a market leader in the eastern part of France, northeastern coast of Spain, and northern Italy. for severally 1 character had its own jitney and the master(prenominal) headquarters was located in Paris. Jacques deald decentralizing the decision making as oft as possible. for distributively one function had its own manufacturing, marketing, dissemination and gross revenue organization. The central office took distri exclusivelye of accounting, developing of new products, and sharing of learning experiences across the regions. Each year Jacques met with the regional coachs to discuss a cabbage jut for each region. The improvement plans laid out regional goals for the upcoming year and were used as a tool to monitor execution of instrument. During the summer months, a arrive at tilt every two weeks was generated and sent to Jacques in order to detect each major troubles.The France region is run by denim Pinoux and had performed exceptionally swell up in 2009 with gets above budget and gross deals increasing by 20% from the previous year. Jean had stumbled across a new bug of revenue in which he helped deliver packaged food for regional producers using the companys refrigerated trucks. The incremental be to site aside the service was very low and was seen by Jean as a simple way to increase revenue. Jacques was surprised by Jeans new initiative, nevertheless(prenominal) acknowledged the cyberspace potential in the distri providedion business. Pierre Giraux is the theater director 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 impose susceptibi lity than pass judgment, which hindered effect of the region.Andres Molas is the manager of the Spanish region and his execution had been owing(p) up until 2009. There had been many problems that sprung up in 2009 make the surgical process of the Spanish region to decline. The firstproblem was the new machines werent working(a) correctly until late August which caused them to run out of capacity several(prenominal) times. The Spanish partitioning had to import product from the French plane section at a bump off cost of full cost plus 5% turn a gain for the manufacturer. On top of that, the Spanish category had to absorb expenses of peck traveling to France to fit the Spanish packaging to the French production line. Lastly, there were unseasonably cold temperatures that had driven have 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 same bonus of 2% of corporate hititions, but the results in 2009 challenged the fairness of this evaluation system. The Spanish region performed extremely woeful and had driven down companys net incomes to the lowest its been in ten years. Jacques thought it was unfair for the French and Italian managers to establish for the problems of the Spanish region but wasnt sure Andres Molas was to blame for the pitiable results. Jacques Truman call for to excite many decisions regarding the evaluation and procedure of each region.In order to properly evaluate the difference between the expected profit versus the actual profit in the Italian region, a causal comp devastationium was conducted on the Italian region. The causal abridgment in bear witness 1 includeed us to better understand the Italian business. First, we evaluated the impact of the change in sales volume. The sales volume disagreement (Flexible budget in Euros passive Budget in Euros) produced a sales version of 119 for Ice skim over sale s and 34 for Specialty sales this represented a profit pas seul of 58. While the sales volume edition is meaning(a), 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 between both ice cream sales and specialty sales. The profit side of the causal psychoanalysis resulted in a 8 version attributed to the temperature change and a 50 variance cerebrate 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 reason by the social 20 variance for ice cream sales and an un well-disposed variance of 13 for specialty sales (20-13=7). This proves that the Italian region great deal charge slightly mo re than(prenominal) for their ice cream sales given the increase in demand, while the increase in demand of the specialty product could be more attributed to the decline in price. Overall, the change in price came out to make a irresponsible impact on the Italian regions profit. The cost of dim materials wedged the actual profit through with(predicate) with(predicate) the price variance and the total variance of the direct materials. Using the direct 3 analysis, it was determined 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 in force(p) with their be of direct materials, but the Italian region came up short in their manufacturing efficiencies as they go through an unfavorable quantity variance of 17.An overall favorable flexible budget variance of 29 represents a positive impact on the profit for direct materials . The cost of projection impacted the actual profit through the rate variance and the efficiency variance of the direct fatigue. Using the level 3 analysis, it was calculated that there was an unfavorable rate variance of 2 and an unfavorable efficiency variance of 11. This impacts the profit because the Italian region pay 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 non 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 costs impacted the actual profit by having an unfavorable variance of 20. This shows that the Italian region was slightly less cost conscious with some of their fixed cost s and this negatively impacted the profit. After considering all of the different components of the profit of the Italian region through a causal analysis, the Italian region experienced a favorable variance of 58 on their overall profit.The manager of the Italian region should be evaluated coition to multiple criteria to gain a holistic diorama of his regions performance. In order to comp ar the three regions together, causal analyses were performed for each region, see Exhibits 1-3. The first crucial measure 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 due to inflation. It is best to look at sales quantities copulation 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 ironlikeer. The next crucial measure should be price and quantity variance. Price variance shows how strong of a treater a manager is with suppliers, which loafer result in huge cost savings. 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.An other 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 oft has little control due to unionization and government regulations within the neighborhood 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 varianc es in determining the appropriate evaluation of the Italian manager. The more specific-scope variances mentioned are shown in Exhibit 6. every last(predicate) of the above tie into the larger picture variances, which are the flexible-budget variance and the sales-volumes variance, which are shown in Exhibit 5 for Italy in 2009. These then bowlful 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 feeble 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 pro vide the same 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 taken 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 transferring product to Spain because this is an intercompany sale and is not based on Frances customer demand but sooner is based on Spains. We believe it is therefore necessary to hold the 5% markup from the purchase price fo r Spain because this get out cause a to a great extent 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 sense that sales are outpacing inventory. It can also be flierd 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 commercial enterprise 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 permit 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 an alysis 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 only major weakness organism 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, except 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 streamlet normally. Revenue growth also exceeded expectations, which as mentioned earlier, is key to growing any business and maintaining positive cash flows.There are three main problems that 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 currently calculated at a fixed 2% of corporate cyberspace 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 link 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 sink for current and future purposes on how to handle transfer pricing in case of a similar event happening again.The tierce problem involves whether or not to allow Jean Pinoux of the French division to continue providing the distributing services to regional food producers. Jean claims the distributing services add extra revenue with very little incremental 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 have ont believe that every manager should precisely receive 2% of corporate profits. Each managers performances can be measured by a variety growth poetic rhythm 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 variance.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 sinless 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. presume 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 overmuchness capacity, there is no opportunity cost to be lost and it should be indifferent for them to make t hese 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 all 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 lucrative company.