1.Next, identify each variance in the chart as to whether the manager had control over it, or if it was something beyond his control. Determine
1.Next, identify each variance in the chart as to whether the manager had control over it, or if it was something beyond his control. Determine the operating performance of the manager based on the items he could control. Comment on the operating performance of each manager using this analysis as a base for discussion.
2.Discuss the manner in which the transfer price was determined. Was it a fair way to determine the cost of the transfer? What other methods would you consider? Who has a vested interest in the transfer pricing calculation? Does corporate care? Do the different divisions care?
3.Discuss the strategic implications of the French Division's expanding side business of deliveries. List at least two benefits of doing this and at least two negatives that could happen if this business were expanded.
4.Discuss what the corporate president should do with the Spanish division in regards to the performance evaluation. Calculate a few of the variances and ratios to support your recommendation as to whether the manager did a good job with the situation he was dealing with. How should a manager with an unusual situation such as faulty machinery be evaluated?
Exhibit 1 Examples of Standards for the 2009 Prot Plan (Spanish Region) Standards Percentage of volume from specialties Selling prices (in Euros) lcecream (per litre) Specialties (per litre) Manufacturing costs (in Euros) Dairy icecream (per litre) Other ingredients icecream (sugar, avor, etc. per 100 grams) Other ingredients specialties (sugar, avor, etc. per 100 grams) Labor (wage per hour) Labor hours icecream (litres per hour) Labor hours specialties (litres per hour) Volume Dairy ingredientsicecream (% of volume) Other ingredientsice cream (grams per litre) Dairy ingredientsspecialties (% of volume) Other ingredientsspecialties (grams per litre) Spain 10% 4.42 8.13 2.61 1.51 2.12 8.13 107.20 11.04 72 % 48 93% 73 Exhibit 2 French Region, 2009 Results Profit Actual Varia Plan nce WA Euros WANT Euros ('000) ('000) Sales Data Sales ice-cream (volume in litres) 17,879 4.515 20,005 2.126 F Sales specialties (litres) 445 3,661 405 3,377 (284) U Revenue from distribution 79 79 F Total Sales 1,921 F Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) 7 893 3.317 9.142 (1,249) 1.644 U Other ingredients (100 gr.) 2.841 2047 3.186 (345) U Labor (hours) 371 4356 438 (67) Cost specialties Dairy ingredients (litres) 417 1,121 1,015 106 F Other ingredients (100 gr. ) 315 693 655 38 F Labor (hours 40. 03 388 35. DE 362 26 Contribution margin 8.233 8.663 430 Other Costs Supervision, energy, maintenance, ... 2.206 2.324 (118) U Depreciation 467 467 Operating margin 5,560 5.872 312 F Selling and Administrative Expenses Delivery expenses 861 308 (47) U Depreciation of trucks 507 510 (3) U Selling expenses 1,078 1,139 (61) Advertising 1,141 1,070 71 F Administrative salaries and expenses 788 810 (22) U Allocated central office expenses 158 193 (35) U Profits before Interest and Taxes 1,027 1,242 215 F Identifiable Assets Cash (average) 94 141 (47) Accounts Receivable (average) 580 634 (54) Plant and equipment (net of depreciation | 2.322) 4.713 4,726 (13) Total identifiable assets 5.387 5.501 (141) Conditions for tourism Average summer temperature 29.8 .C 29.2. CExhibit 3 Italian Region, 2009 Results Profit Actual Varian 14 Euros Euros ('000) Sales Data Sales ice-cream (volume in litres) 8.453 10,367 8.450 11,106 139 F Sales specialties (litres) FFE 2.232 2.253 21 Total Sales $435 13.199 2.756 ###+ 160 F Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) 4,363 1835 4,986 U Other ingredients (100 gr.) 1.885 1.932 (47) Labor (hours) 53. * 300 56. 03 328 (28) U Cost specialties Dairy ingredients (litres) 689 676 13 F Other ingredients (100 gr.) 425 430 (5) U Labor (hours) 220 212 8 F Contribution margin 4,717 4.795 78 F Other Costs Supervision, energy, maintenance, ... 1,142 1,135 7 F Depreciation 109 109 Operating margin 3.466 3.551 85 F Selling and Administrative Expenses Delivery expenses 329 315 14 F Depreciation of trucks 198 198 C Selling expenses 314 344 (30) U Advertising 1,328 1,286 40 F Administrative salaries and expenses 558 574 (16) U Rent 122 122 Allocated central office expenses 158 193 35) U Profits before Interest and Taxes 459 517 58 F Identifiable Assets Cash (average) 94 108 (14) Accounts Receivable (average) 377 357 20 Plant and equipment (net of depreciation | 3,200) 2.763 2.764 Total identifiable assets 3.234 3,229 5 Conditions for tourism Average summer temperature 29.7.C 29.8 0Exhibit 4 Spanish Region, 2009 Results Profit Actual Varian WANT Euros Euros ('000) /207 ('000) Sales Data Sales ice-cream (volume in litres) 3635 16,294 3.575 15,507 (787) Sales specialties (litres) 409 3,330 407 3,251 (79) U Total Sales ###4 (866) Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) 8553 6,923 2.175 5.607 1,316 F Other ingredients (100 gr. ) 1759 2.670 1450 2.202 468 F Labor (hours) 34 37 279 238 41 F Cost specialties Dairy ingredients (litres) 994 933 61 Other ingredients (100 gr. ) 633 571 32 Labor (hours) 301 34. F 283 18 Contribution margin 1,100 1 7 7 7 F Other Costs Supervision, energy, maintenance, ... 2.145 2.166 (21) U Depreciation 391 Transfer from France 2.126 (2.126) U Operating margin 4.241 (1,047) U Selling and Administrative Expenses Delivery expenses 736 758 (22) U Depreciation of trucks 413 424 (71) U Subcontracted transportation 77 (77) U Selling expenses 827 786 41 F Advertising 1,406 1,408 (2) U Administrative salaries and expenses 620 644 (24) U Rent 100 100 Allocated central office expenses 158 193 (35) U Profits before Interest and Taxes 1,028 (149) (1,177) U Identifiable Assets Cash (average) 94 98 (4) Accounts Receivable (average) 423 266 156 Plant and equipment (net of depreciation /1,669) 4.764 4.837 (73) Total identifiable assets 5.281 5.201 80 Conditions for tourism Average summer temperature 30.2 C 28.5 CExhibit 5 2009 lcecream Transfers between France and Spain lee-cream Cost of Total [in '000 ingredients Cost per litre Euros) Volume transferred (in '000 litres} 603 Actual Costs (in Euros) Dairy Ingredients 2.76 1.98 1,194 Other Ingredients 1.56 0.69 416 Labor 0.09 0.09 5? Allocated Fixed Costs (in Euros} Other costs 0.46 279 Depreciation 0.09 56 86A expenses 0.04 23 5% prot margin 0.1? 101 Total transfer price 3.53 2,126 Exhibit 6 Historical Data-Temperature and Sales Volume France Year Temperature Sales Volume Volume Growth [degrees Celsius) ['000 litres) 1935 27.7 1,344 1936 29.2 1,435 6.72 1937 28.4 1,484 3.4X 1998 30.3 1,714 15.52 1939 32.3 2,031 18.5% 2000 27.3 1,384 -2.32 2001 30.0 2,208 11.32 2002 30.5 2,489 12.72 2003 30.8 2,761 10.3% 2004 30.0 2,398 8.62 2005 29.7 3,216 7.3% 2006 30.3 3,445 7.12 2007 29.6 3,797 10.2% 2008 23.4 4,087 7.6% 2009 [budget) 4,455 9.0% Average 25.8 0 9.12 Spain Tear Temperature Sales VolumeVolume Growth [degrees Celsius) ['000 litres) 1395 30.8 1,069 1936 31.2 1,272 18.3% 1937 29.0 1,402 10.2% 1938 31.6 1,685 20.2% 1993 23.8 1,852 9.3X 2000 28.3 2,006 8.3% 2001 28.0 1,964 -2.1% 2002 27.5 2,033 3.52 2003 29.3 2,231 9.8% 2004 30.4 2,481 11.2% 2005 31.8 2,684 8.2% 2006 32.4 3,036 13.12 2007 30.4 3,346 10.2% 2008 31.0 3,722 11.32 2009 [budget) 4,094 10.0% Average 30.2 -C 10.27 Italy Tear Temperature Sales Volume Volume Growth [degrees Celsius) ('000 litres) 1993 32.2 892 2000 30.4 1,036 16.1% 2001 28.6 1,143 10.3% 2002 31.8 1,434 25.62 2003 28.1 1,508 5.1% 2004 28.2 1,639 8.7% 2005 29.0 1,771 8.0% 2006 28.3 1,872 5.7% 2007 30.1 2,030 11.7% 2008 30.0 2,433 16.4% 2009 [budget) 2,725 12.0% Average 29.7 C 12.02
