Carl had worked hard in his several years of food service management. He lacked a college degree,
Question:
Carl had worked hard in his several years of food service management. He lacked a college degree, but he had prevailed in the competitive industry by using common sense and an appreciation of how people, namely one’s employees, can make the difference between success and failure. He also took the time to read industry trade magazines.
So, when he got the call from Mutual Insurance’s corporate headquarters to run its sizable café, he knew he was ready. The first few days on the job were spent getting to know employees, the facility, and the customers. He was excited and confident that he was in the right position at the right time. Following this brief orientation, he was scheduled for a meeting that would set the parameters of his mission.
When he met with his new boss, the vice president of human resources, he immediately noted that the tone was very different from the upbeat, cheerful attitude that Carl had encountered during his interviews. Today, Candace Sherman was all business. Candace started by explaining to Carl that his predecessor was asked to leave Mutual Insurance because of the losses the café had incurred. The food was excellent, the foodservice staff was relatively happy, and the customers were generally pleased with the food, but the man Carl had replaced had not managed the costs well. Candace added, “Your predecessor was a very nice person, but for the six months he worked here he ignored my requests for a financial report. He kept telling me that he had all the numbers in his head and that the operation was profitable so there was no need for concern. He said that food cost and labor cost were each under 40 percent, so he knew he was profitable. When we were audited last month, we learned that he was losing about $10,000 a month. This is why he was fired. We can’t afford to lose money anymore. This is why we hired you, owing to your many years in the business.”
Carl wasn’t sure what to say. On the one hand, it sounded like he was receiving a compliment, but on the other it sounded like a warning. Until today, he had no idea what had happened to the previous manager.
After an unpleasantly long silence, Candace leaned forward over her desk and looked Carl straight in the eye. “By Friday, I expect a comprehensive budget for
the foodservice operation. I will hold you to the budget, and while I don’t expect the café to make a ton of money, I expect the realistic profit shown on your budget to be achieved.”
With that, the meeting was over. Carl went back to his small office and found that the drawers were empty. There were no financial records of any kind. There wasn’t even a calculator. It was then that Carl began to panic. He had never created a budget, and while he knew that controlling expenses was important, he’d never been asked to consider the financial side of the business.
Facing all that,
1- Is hiring Carl was the right decision for the company? Explain your answer. If you are Carl, will you accept such position and what questions should you ask during the interviews conducted?
2- From this case and before hiring Carl, was the operation at the cafe running in the right direction? Explain in details your logic.
3- If you are Carl, what will you do to solve this dilemma and prepare the forecasted budget? What financial numbers are needed and what actions or steps need to be taken by Carl to prepare his budget?
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young