C1-34. Success Factors and Performance Measurement

Three years ago, Vincent Chow completed his college degree. The economy was in a depressed state

at the time, and Vincent managed to get an offer of only $25,000 per year as a bookkeeper. In addition

to its relatively low pay, this job had limited advancement potential. Since Vincent was an enterprising

and ambitious young man, he instead started a business of his own. He was convinced that because of

changing lifestyles, a drive-through coffee establishment would be profitable. He was able to obtain

backing from his parents to open such an establishment close to the industrial park area in town. Vincent

named his business The Cappuccino Express and decided to sell only two types of coffee: cappuccino

and decaffeinated.

As Vincent had expected, The Cappuccino Express was very well received. Within three years,

Vincent had added another outlet north of town. He left the day-to-day management of each site to a

manager and turned his attention toward overseeing the entire enterprise. He also hired an assistant to

do the record keeping and other selected chores.

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Required

a. Develop an organization chart for The Cappuccino Express.

b. What factors can be expected to have a major impact on the success of The Cappuccino Express?

c. What major tasks must Vincent undertake in managing The Cappuccino Express?

d. What are the major costs of operating The Cappuccino Express?

e. Vincent would like to monitor the performance of each site manager. What measure(s) of perfor-

mance should he use?

f. If you suggested more than one measure, which of these should Vincent select if he could use only

one?

g. Suppose that last year, the original site had yielded total revenues of $146,000, total costs of

$122,000, and hence, a profit of $24,000. Vincent had judged this profit performance to be satisfac-

tory. For the coming year, Vincent expects that due to factors such as increased name recognition

and demographic changes, the total revenues will increase by 20 percent to $175,200. What amount

of profit should he expect from the site? Discuss the issues involved in developing an estimate of profit.