1. Calculate the amount of the bonus pool available under the existing bonus plan. How much would each manager get if that were applied to 2009 results?

2. We want to break down the profit variance into separate components. Part of the reason for this analysis is to determine how profits changed due to factors that are under the control of management, and how profits changed due to factors outside the control of management. Why is this distinction important for performance measurement?

3. We can divide the various differences into two broad categories: Competitive Effectiveness and Operational Efficiency. Competitive effectiveness can be measured by 4 variances: Temperature, Market Share (excluding transfers), Sales Mix, and Product Price. For both the French region and the Italian region (we will look at Spain later), calculate the following: a. What is the standard contribution per liter of product? (Standard contribution is the budgeted contribution margin divided by the budgeted volume in liters.) b. How much additional product was sold due to the change in average temperature? What affect did this have on profitability? c. Market share variance is measured by the change in total volume of product sold, times the standard contribution. What affect did this have on profitability? d. The budget plan called for 10% of revenue to come from specialty products. What was the actual % of revenue that came from Specialty Products? This calculation is challenging, so I will give you the net effect. For the Italian region, this increased profits by 2,000 Euro. For the French region, this decreased profits by 59,000 Euro. Explain why the shift in product mix between ice creams and specialty products would cause the profit to change. e. How much of the change in profit came about due to the product price being different? Measure this by looking at the actual sales revenue compared to the expected revenue based on planned prices and actual volumes.

Exhibit 1 Examples of Standards for the 2009 Profit Plan (Spanish Region) Spain 10% 4.42 8.13 Standards Percentage of volume from specialties Selling prices (in Euros) Ice-cream (per litre) Specialties (per litre) Manufacturing costs (in Euros) Dairy ice-cream (per litre) Other ingredients ice-cream (sugar, flavor, etc. per 100 grams) Other ingredients specialties (sugar, flavor, etc. per 100 grams) Labor (wage per hour) Labor hours ice-cream (litres per hour) Labor hours specialties (litres per hour) Volume Dairy ingredients-ice-cream (% of volume) Other ingredients ice cream (grams per litre) Dairy ingredientsspecialties (% of volume) Other ingredientsspecialties (grams per litre) 2.61 1.51 2.12 8.13 107.20 11.04 72% 48 93% 73 Exhibit 2 French Region, 2009 Results Profit ActualVaria Plan nce Hon Euros xolam Euros w (000) 7000 (1000) 400 17,879 4.619 20,005 2,126 F 445 3,661 405 3,377 (284) U 79 79 F # ### W +++ 1,921 F 2887 1944 30.29 7,893 3.317 2,841 2047 371 43.56 9,142 (1,249) 3,186 (345) 438 (67) U U U 40 315 106 38 1,121 369 1,015 693 299 655 388 36 02362 8,663 8,233 LLLLL (118) Sales Data Sales ice-cream (volume in litres) Sales specialties (litres) Revenue from distribution Total Sales Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin Other Costs Supervision, energy, maintenance,... Depreciation Operating margin Selling and Administrative Expenses Delivery expenses Depreciation of trucks Selling expenses Advertising Administrative salaries and expenses Allocated central office expenses Profits before Interest and Taxes Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 12,322) Total identifiable assets Conditions for tourism Average summer temperature 2,206 467 5,560 2,324 467 5,872 312 F 861 507 1078 1,141 908 510 1,139 1,070 810 193 1,242 (47) U (3) U (61) U 71 F (22) U (35) U 215 F 788 1.027 590 141 (471 634 (54) 4,726 (13) 5,501 (141) 4.713 5,387 29.8C 29.2 C Exhibit 3 Italian Region, 2009 Results Profit Kom Euros ActualVarian Kalm Euros (900 1000 10001 (000) 2453 272 *** 10.967 2.480 11,106 2.232 275 2,253 13,199 2.756 000 139 21 160 F F F 1.964 1275 300 4.963 1,885 300 1895 1.296 35.03 4,986 1,932 328 (23) (47) (28) U U U 689 425 257 197 676 430 212 13 (5) 8 78 F U F F 4,717 4,795 1.142 7 F 109 1,135 109 3,551 3,466 85 F Sales Data Sales ice-cream (volume in litres) Sales Specialties (litres) Total Sales Cost of Goods Sold Costice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin Other Costs Supervision, energy, maintenance, ... Depreciation Operating margin Selling and Administrative Expenses Delivery expenses Depreciation of trucks Selling expenses Advertising Administrative salaries and expenses Rent Allocated central office expenses Profits before Interest and Taxes Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 13,200) Total identifiable assets Conditions for tourism Average summer temperature 329 198 314 315 198 344 1,288 574 122 193 517 14 - (30) 40 (16) F U U F U 1,328 558 122 158 459 (35) 58 U F 94 (14) 20 377 2.763 3,234 108 357 2.764 3,229 5 29.7 C 29.8 C Exhibit 4 Spanish Region, 2009 Results Profit Actual Varian Yorum Euros Kol Euros 200 (000) 1000 (000) 3685 16,294 3575 15,507 409 3,330 400 3,251 4.094 #### 2 2010 (787) U (79) U (866) U 2653 6,923 2.175 1.759 2,670 1450 34.37 279 29.2 5,607 2,202 238 1,316 468 41 F F F 61 F 301 2299 3709 994 633 301 362 275 34. 7 933 571 283 62 F 18 1,100 F F 2.145 391 2,166 (21) U 391 2,126 (2,126) U 4,241 (1,047) U II Sales Data Sales ice-cream (volume in litres) Sales specialties (litres) Total Sales Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin Other Costs Supervision, energy, maintenance,... Depreciation Transfer from France Operating margin Selling and Administrative Expenses Delivery expenses Depreciation of trucks Subcontracted transportation Selling expenses Advertising Administrative salaries and expenses Rent Allocated central office expenses Profits before Interest and Taxes Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 11,669) Total identifiable assets Conditions for tourism Average summer temperature 736 413 827 1.406 620 100 158 1,028 758 (22) U 424 (11) U 77 (77) U 786 41 F 1,408 (2) U 644 (24) U 100 193 (35) U (149) (1,177) U 94 423 4,764 5,281 98 (4) 266 156 4,837 (73) 5,20180 30.2 C 28.5 C Exhibit 5 2009 Ice-cream Transfers between France and Spain Ice-cream Cost of Total (in '000 ingredients Cost per litre Euros) 603 2.76 1.56 0.09 1.98 0.69 0.09 1,194 416 57 Volume transferred (in '000 litres) Actual Costs (in Euros) Dairy Ingredients Other Ingredients Labor Allocated Fixed Costs (in Euros) Other costs Depreciation S&A expenses 5% profit margin Total transfer price 279 56 0.46 0.09 0.04 0.17 3.53 23 101 2,126 Exhibit 6 Historical Data-Temperature and Sales Volume Year 21.7 1995 1936 1997 1338 1399 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (budget) Average France Teoperature Sales Yolene Volun. Groet (degrees Celsius) 1'000 litrea 1.344 1,435 6.7% 28.4 1,484 3.4% 30.9 1.714 15.5% 32.9 2,031 18.5% 27.3 1,384 -2.3% 30.0 2 208 11.34 30.5 2.489 12.73 30.8 2.761 10.94 2,998 8.6% 23.7 3.216 7.3% 30.3 3.445 7.1% 236 3.797 10.2% 4,087 7.6% 4.455 3.0% 23.8 C 9.12 30.0 Year 30.8 31.2 31.6 1995 1996 1997 1938 1939 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (budget) Average Spain Temperature Sales Volume Volume Groot (degrees Celsius) ('000 litres) 1,069 1272 18.3% 29.0 1,402 10.2% 1.685 20.2% 23.8 1,052 9.9% 28.3 2,006 8.3% 26.0 1,364 2,033 3.54 23.9 9.82 2,481 11.2% 31.8 2.684 32.4 3.036 13.1% 30.4 3.346 310 3,722 113% 4,034 10.03 30.2 C 10.22 215 2.231 10 24 Year 30.4 Italy Temperature Sales Volume Volume Groot [degrees Celsius) roo0 litres 32.2 892 1,036 16.1% 28.6 1.143 10.3% 31.8 1,434 25.6% 1.508 5.12 28.2 1.639 8.7% 23.0 1,771 8.0% 26.3 1072 5.7% 30.1 2,090 30.0 2,433 2,725 12.0% 29.7 C 12.02 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2003 (budget) Average 28.1 11.7% 16.43 Exhibit 1 Examples of Standards for the 2009 Profit Plan (Spanish Region) Spain 10% 4.42 8.13 Standards Percentage of volume from specialties Selling prices (in Euros) Ice-cream (per litre) Specialties (per litre) Manufacturing costs (in Euros) Dairy ice-cream (per litre) Other ingredients ice-cream (sugar, flavor, etc. per 100 grams) Other ingredients specialties (sugar, flavor, etc. per 100 grams) Labor (wage per hour) Labor hours ice-cream (litres per hour) Labor hours specialties (litres per hour) Volume Dairy ingredients-ice-cream (% of volume) Other ingredients ice cream (grams per litre) Dairy ingredientsspecialties (% of volume) Other ingredientsspecialties (grams per litre) 2.61 1.51 2.12 8.13 107.20 11.04 72% 48 93% 73 Exhibit 2 French Region, 2009 Results Profit ActualVaria Plan nce Hon Euros xolam Euros w (000) 7000 (1000) 400 17,879 4.619 20,005 2,126 F 445 3,661 405 3,377 (284) U 79 79 F # ### W +++ 1,921 F 2887 1944 30.29 7,893 3.317 2,841 2047 371 43.56 9,142 (1,249) 3,186 (345) 438 (67) U U U 40 315 106 38 1,121 369 1,015 693 299 655 388 36 02362 8,663 8,233 LLLLL (118) Sales Data Sales ice-cream (volume in litres) Sales specialties (litres) Revenue from distribution Total Sales Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin Other Costs Supervision, energy, maintenance,... Depreciation Operating margin Selling and Administrative Expenses Delivery expenses Depreciation of trucks Selling expenses Advertising Administrative salaries and expenses Allocated central office expenses Profits before Interest and Taxes Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 12,322) Total identifiable assets Conditions for tourism Average summer temperature 2,206 467 5,560 2,324 467 5,872 312 F 861 507 1078 1,141 908 510 1,139 1,070 810 193 1,242 (47) U (3) U (61) U 71 F (22) U (35) U 215 F 788 1.027 590 141 (471 634 (54) 4,726 (13) 5,501 (141) 4.713 5,387 29.8C 29.2 C Exhibit 3 Italian Region, 2009 Results Profit Kom Euros ActualVarian Kalm Euros (900 1000 10001 (000) 2453 272 *** 10.967 2.480 11,106 2.232 275 2,253 13,199 2.756 000 139 21 160 F F F 1.964 1275 300 4.963 1,885 300 1895 1.296 35.03 4,986 1,932 328 (23) (47) (28) U U U 689 425 257 197 676 430 212 13 (5) 8 78 F U F F 4,717 4,795 1.142 7 F 109 1,135 109 3,551 3,466 85 F Sales Data Sales ice-cream (volume in litres) Sales Specialties (litres) Total Sales Cost of Goods Sold Costice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin Other Costs Supervision, energy, maintenance, ... Depreciation Operating margin Selling and Administrative Expenses Delivery expenses Depreciation of trucks Selling expenses Advertising Administrative salaries and expenses Rent Allocated central office expenses Profits before Interest and Taxes Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 13,200) Total identifiable assets Conditions for tourism Average summer temperature 329 198 314 315 198 344 1,288 574 122 193 517 14 - (30) 40 (16) F U U F U 1,328 558 122 158 459 (35) 58 U F 94 (14) 20 377 2.763 3,234 108 357 2.764 3,229 5 29.7 C 29.8 C Exhibit 4 Spanish Region, 2009 Results Profit Actual Varian Yorum Euros Kol Euros 200 (000) 1000 (000) 3685 16,294 3575 15,507 409 3,330 400 3,251 4.094 #### 2 2010 (787) U (79) U (866) U 2653 6,923 2.175 1.759 2,670 1450 34.37 279 29.2 5,607 2,202 238 1,316 468 41 F F F 61 F 301 2299 3709 994 633 301 362 275 34. 7 933 571 283 62 F 18 1,100 F F 2.145 391 2,166 (21) U 391 2,126 (2,126) U 4,241 (1,047) U II Sales Data Sales ice-cream (volume in litres) Sales specialties (litres) Total Sales Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin Other Costs Supervision, energy, maintenance,... Depreciation Transfer from France Operating margin Selling and Administrative Expenses Delivery expenses Depreciation of trucks Subcontracted transportation Selling expenses Advertising Administrative salaries and expenses Rent Allocated central office expenses Profits before Interest and Taxes Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 11,669) Total identifiable assets Conditions for tourism Average summer temperature 736 413 827 1.406 620 100 158 1,028 758 (22) U 424 (11) U 77 (77) U 786 41 F 1,408 (2) U 644 (24) U 100 193 (35) U (149) (1,177) U 94 423 4,764 5,281 98 (4) 266 156 4,837 (73) 5,20180 30.2 C 28.5 C Exhibit 5 2009 Ice-cream Transfers between France and Spain Ice-cream Cost of Total (in '000 ingredients Cost per litre Euros) 603 2.76 1.56 0.09 1.98 0.69 0.09 1,194 416 57 Volume transferred (in '000 litres) Actual Costs (in Euros) Dairy Ingredients Other Ingredients Labor Allocated Fixed Costs (in Euros) Other costs Depreciation S&A expenses 5% profit margin Total transfer price 279 56 0.46 0.09 0.04 0.17 3.53 23 101 2,126 Exhibit 6 Historical Data-Temperature and Sales Volume Year 21.7 1995 1936 1997 1338 1399 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (budget) Average France Teoperature Sales Yolene Volun. Groet (degrees Celsius) 1'000 litrea 1.344 1,435 6.7% 28.4 1,484 3.4% 30.9 1.714 15.5% 32.9 2,031 18.5% 27.3 1,384 -2.3% 30.0 2 208 11.34 30.5 2.489 12.73 30.8 2.761 10.94 2,998 8.6% 23.7 3.216 7.3% 30.3 3.445 7.1% 236 3.797 10.2% 4,087 7.6% 4.455 3.0% 23.8 C 9.12 30.0 Year 30.8 31.2 31.6 1995 1996 1997 1938 1939 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (budget) Average Spain Temperature Sales Volume Volume Groot (degrees Celsius) ('000 litres) 1,069 1272 18.3% 29.0 1,402 10.2% 1.685 20.2% 23.8 1,052 9.9% 28.3 2,006 8.3% 26.0 1,364 2,033 3.54 23.9 9.82 2,481 11.2% 31.8 2.684 32.4 3.036 13.1% 30.4 3.346 310 3,722 113% 4,034 10.03 30.2 C 10.22 215 2.231 10 24 Year 30.4 Italy Temperature Sales Volume Volume Groot [degrees Celsius) roo0 litres 32.2 892 1,036 16.1% 28.6 1.143 10.3% 31.8 1,434 25.6% 1.508 5.12 28.2 1.639 8.7% 23.0 1,771 8.0% 26.3 1072 5.7% 30.1 2,090 30.0 2,433 2,725 12.0% 29.7 C 12.02 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2003 (budget) Average 28.1 11.7% 16.43