CASE It was a regular working day in April 2021, when four business partners gathered together for strategy session for their organization: Food for Thought (FFT). Background: FFT operated a chain of Quick Service Restaurants (QSR) in business localities in the GTA, Mississauga, Brampton, Oakville, Kitchener, Waterloo, and Cambridge. Their first outlet opened in 2007 in Vaughn and then continued to expand to other areas. FFT outlets offered food and beverages for takeout and delivery only. There was no dine in option available. The rapid expansion of food delivery service provided a strong headwind for FFT. Since their outlets did not require a prominent location, the leasing costs were minimized. The above factors contributed to the success and growth of FFT until Covid struck in early 2020. Most the revenue generated by FFT was from lunch items, afternoon snacks and early evening dinners consumed by clients working in their offices. With 90% of client working from home, the demand for such services almost disappeared overnight. FFT had to downsize its operations, close outlets, and lay off nearly 60% of its workforce. Positive news began to appear in April 2021 with the arrival of vaccines in Canada. Both the Federal and Provincial governments expressed confidence of vaccinating a majority of the population by Fall 2021 and allow restaurant businesses to function normally by November 2021. About business partners Sonia Jimenez (Sonia) is the Senior Vice President- Marketing. Erin Smith (Erin) was the Corporate Chef of FFT. Noah Wiseman (Noah) was the Chief Financial Officer of FFT. Babatunde Jones (Tunde) was the Senior Vice President-Operations Reshaping business strategy The four business partners set up their meeting with a view to re-orient their business strategy in the context of changes coming to how work would look like when the economy reopened after the pandemic. The goal was to develop a business model which would be relevant with the hybrid work model which was likely to be the norm once post pandemic recovery takes shape. Sonia began the meeting with a discussion of what work would look like in the post-pandemic era. A typical client of FFT was between 25 48 years of age and worked in an office setting. Due to their clients workload and schedule, they preferred to buy food from a Quick Service Restaurant so that they could consume the food as and when their work schedule allowed for. With the hybrid work model, they would be attending office two or three days a week and work from home for the remainder. MGMT 8500: f23 -capstone -V30 P a g e 4 | 12 The food consumption pattern would shift from consumption only in the office (pre-pandemic), to consumption both at office and home (post-pandemic). The question therefore was: how can FFT adapt to this change in consumer behaviour? Erin thanked Sonia for her insight and began her discussion. She pointed out at this time, there was a very short time lag between food being prepared at FFT and being consumed by the client. The time lag possibly was no more than two hours. As a result, consumers were able to eat freshly prepared food which was packed to retain the attributes of the cooked meal till it reached the consumer. She expressed opinion that the food production process needed a transformation. In addition to the food being prepared and delivered to the client for consumption, there would have to be a secondary process where food would be prepared and packed. The packed food would retain its original attributes for 48 hours. Therefore, a client could order two versions of the same meal the first, which could be consumed in the office within the next two hours and the second, the packed version, which can be taken home, kept in the refrigerator, and consumed on the following day. Tunde wanted to point out that while the revenue generated by FFT was from (1) lunch items, (2) afternoon snacks and (3) early evening dinners, the third segment, early evening dinners, had been showing a loss, due to the relatively lower sales, costlier ingredients, and the need for specialized equipment. The group wondered if dropping this segment, early evening dinners, would be advisable and could be an important part of this new strategy. At this point, Noah took over and pointed out that to implement this strategy, the following steps would be necessary: A new facility, where food preparation and food packaging would take place Benchmarking studies to analyze performance of similar companies Static Budget Variance Analysis to compare the budget versus actual income statement for the most recent period Determining whether dropping a segment, early evening dinners, would be advisable. As a next step, they decided to retain the services of coyra consulting, a reputable consulting agency. The scope of work for would be to develop financial projections based on the above issues and provide a recommendation as to the best way forward for FFT.

Static Budget Variance Analysis The consulting group wanted to investigate the companys performance in this latest period by conducting a static budget variance analysis, comparing the budgeted income statement to the actual income statement. Relevant data is presented in Appendix 3.

use below data for extra information needed

Appendix Three (Static Budget Variance Analysis) Objective: Preparing a static budget variance analysis (compare the actual income statement with the budgeted income statement) and show all variances and indicate Favourable or Unfavourable for each variance. Scenario: In Appendix One, you are provided the actual Income Statement for the latest period. Below you will find the Budgeted Income Statement for that same period. Complete the template based on these two statements, then determine the variance amounts for each account along with whether each variance is U/F. Appendix One (Construct or lease) Objective: Should FFT lease or construct their own production facility Methodology: The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction. Based on the analysis, they will recommend the preferred option (construction or leasing). Appendix Two (Benchmarking studies) Objective: To conduct ratio analysis of a comparable company (Waterloo Corporation) and compare with that of the industry. \begin{tabular}{|c|c|c|c|c|} \hline \multicolumn{5}{|c|}{\begin{tabular}{c} FFT Corporation \\ Comparative Statements of Financial Position \\ 31 Dec- 20 \end{tabular}} \\ \hline Assets & & 2020 & & 2019 \\ \hline Cash & $ & 50,000 & $ & 25,000 \\ \hline Accounts receivable & & 65,000 & & 90,000 \\ \hline Merchandise inventory & & 30,000 & & 60,000 \\ \hline Prepaid Expenses & & 55,000 & & 40,000 \\ \hline Property, plant, and equipment & & 300,000 & & 250,000 \\ \hline Total assets & $ & 500,000 & $ & 465,000 \\ \hline \multicolumn{5}{|l|}{ Liabilities and shareholders' equity } \\ \hline Accounts payable & $ & 25,000 & $ & 30,000 \\ \hline Short-term bank loan payable & & 50,000 & & 65,000 \\ \hline Bonds payable & & 250,000 & & 160,000 \\ \hline Common shares & & 150,000 & & 95,000 \\ \hline Retained earnings & & 125,000 & & 75,000 \\ \hline Total liabilities and shareholders' equity & $ & 600,000 & $ & 425,000 \\ \hline \multicolumn{5}{|c|}{\begin{tabular}{c} FFT Corporation \\ Income Statement \\ Year Ended December 31, 2020 \end{tabular}} \\ \hline Net sales & & & $ & 350,000 \\ \hline Cost of goods sold & & & & 210,000 \\ \hline Gross profit & & & & 140,000 \\ \hline \multicolumn{5}{|l|}{ Expenses } \\ \hline Operating expenses & $ & 40,000 & & \\ \hline Administration expense & & 22,000 & & \\ \hline Rent expense & & 15,000 & & \\ \hline Total expenses & & & & 77,000 \\ \hline Profit before income tax & & & & 63,000 \\ \hline Income tax expense & & & & 20,000 \\ \hline Profit & & & $ & 43,000 \\ \hline \multicolumn{5}{|l|}{ Additional information for 2020 : } \\ \hline 1 Cash dividends declared and paid. & & & $ & 28,000 \\ \hline 2 Net cash provided by operating activities & 2020 & & $ & 72,000 \\ \hline \end{tabular}