Compagnie du Froid, S.A

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:
   1. What is the standard contribution per liter of product? (Standard contribution is the budgeted contribution margin divided by the budgeted volume in liters.)
   2. How much additional product was sold due to the change in average temperature? What affect did this have on profitability?
   3. 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?
   4. 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.
   5. 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.

4. The other category of variances, operational efficiency variances, are calculated by comparing the inputs of the raw materials and labor hours compared to the standards for each. Again, the calculations can be challenging, so I am providing the variance amounts for you. For the French region, the operational efficiency variances reduced the profit by 187,000 Euro. For the Italian region, the operational efficiency variance increased profit by 31,000 Euro.

5. There are some miscellaneous variances as well, including the corporate allocation for both regions. For just the French region, there was the effect of the shipments to Spain and the new delivery business. Input these amounts from the case exhibits to the worksheet.

6. The next task for you is to complete the chart found in the posted Excel file. It is the worksheet titled 2009 Performance. Each of the highlighted cells need to be filled in, either with the previous calculations, data from the other exhibits, or new calculations for this page. Note that the chart is asking for the changes to profit as a result of comparing the budget to the actual results. Each input should reconcile the total difference from planned profit to actual profit. When you include this chart in your final report, do not include the entire workbook. Just put this page in your report, likely as an appendix item.

7. 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.

8. 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?

9. Discuss the strategic implications of the French Divisions 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.

10. 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 2 French Region, 2009 Results Variance hoat Plan Volume Euros 000) (000) Actual Volume Euros C000) (000) 2 Sales Data Sales ice-cream (volume in litres) Sales specialties (litres) Revenue from distribution Total Sales 4,010 445 17.870 3,661 4,618 405 20.005 3,377 .128 (284) F U 4,455 21,540 5,023 23,461 1 ,921 F Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) 2,887 1,844 38.29 7,893 2,841 371 3,317 2,047 43.56 0,142 3,188 438 (1.240) (345) (67) U U U 410 Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin 1.121 693 368 298 36.02 100 38 316 F 1,015 855 3.02 8,663 40.03 388 8,233 430 F C Other Costs Supervision, energy, maintenance,... Depreciation Operating margin 2,200 487 2,324 5,872 4ez 5,560 - 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 861 507 1.078 1,141 908 510 1,139 1,070 810 mccnccc 788 192 1.242 1027 Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation e 2,322) Total identifiable assets 580 4.713 5.387 47720 5501 Conditions for tourism Average summer temperature 29.8 C 20.3C 29.2C 20.2C Compagnie du Froid, 5.A. Exhibit 1 Examples of Standards for the 2009 Profit Plan (Spanish Region) Standards Percentage of volume from specialties Spain 10% Selling prices (in Euros) Ice-cream (per litre) Specialties (per litre) 4.42 8.13 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) 2.61 1.51 2.12 8.13 107.20 11.04 72% Volume Dairy ingredients-ice-cream (% of volume) Other ingredients-ice cream (grams per litre) Dairy ingredientsspecialties (% of volume) Other ingredientsspecialties (grams per litre) 48 93% Exhibit 3 Italian Region, 2009 Results Variance Profit Plan Actual Volume Euros Volume Euros 7000) (000 000000) Sales Data Sales ice-cream (volume in litres) Sales Specialties (litres) Total Sales 2.453 272 2725 10,987 2.232 13.199 2,480 276 2,756 11,100 2 253 13,359 Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) 4.983 1,864 1,275 33. 10 1,885 300 1,895 1,296 36.03 4,086 1,032 328 ccc 670 Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin 259 196 24 24 889 425 220 257 197 23.29 430 " nan 212 4.717 4,795 Other Costs Supervision, energy, maintenance,... Depreciation Operating margin 1,142 109 3,466 1,135 109 3,551 " " 329 315 108 344 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 198 314 1,328 558 122 1.288 "c C ca " 574 122 193 ASA 517 108 (14) Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 3.200) Total identifiable assets 377 357 2.764 2.229 Conditions for tourism Average summer temperature 29.7C 29.8C Exhibit 4 Spanish Region, 2009 Results V ariance Poth Plan Volume Euros rooo (000) Actual Volume Euros 000 (000) Sales Data Sales ice-cream (volume in litres) Sales Specialties (litres) Total Sales 3,685 409 4,094 16.294 3.330 19,624 3,575 15,507 400 __ 3.251 3,975 18,758 (8663 Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) 2,653 1,769 34.37 6.923 2,670 279 2,175 1,450 29.21 2.202 238 1,318 468 381 033 Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin 299 37.09 571 994 633 301 7.824 362 275 34.73 283 8,924 1.100 Other Costs Supervision, energy, maintenance,... Depreciation Transfer from France Operating margin 2,145 391 2.168 301 2.120 4.241 5,288 2.120) (1.047) 730 413 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 827 1,400 620 100 758 (22) 424 (11) 77 786 1.408 844 100 193 11491_111772 158 _1028 98 Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 1.680) Total identifiable assets 268 423 4.744 1266 4.827 5.201 Conditions for tourism Average summer temperature 30.2C 28.5C Exhibit 6 Historical Data-Temperature and Sales Volume Volume Growth 8.7% 15.5% 18.5% France Year Temperature Sales Volume (desrees Celsius (000 litres) 1995 27.7 1.344 1990 29.2 1.435 1997 28.4 1,484 1998 30.9 1,714 1999 32.9 2,031 2000 27.3 1.984 30.0 2.208 30.5 2.489 2003 2.781 2004 30.0 2,998 2005 20.7 3,216 2000 3,445 2007 3,797 2008 20.4 4,087 2000 (budget) 4,455 Average 29.8 C 11.3% 12.7% 10.0% 30.8 30.3 20.0 7.3% 7.1% 10.2% 7.6% 9.0% 9.1% 29.0 Spain Year Temperature Sales Volume Volume Growth (degrees Celsius) (000 litres 1996 30.8 1.080 1990 31.2 1.272 18.9% 1007 1.402 10.2% 1998 31.6 1.885 20.2% 1999 1.852 2000 2.008 8.3% 2001 1.984 -2.1% 2002 2.033 3.5% 2003 2.231 0.8% 2004 2.481 11.2% 2005 2.684 8.2% 2008 32.4 3.038 13.1% 2007 30.4 3.346 10.2% 2008 31.0 3.722 11.3% 2000 (budget) 4,094 10.0% Average 10.2% co 29.0 30.4 31.8 30.2 C Compagnie du Trold, S.A Exhibit 6 Historical Data-Temperature and Sales Volume (Continued) Italy Sales Volume (000 litres Volume Growth 802 16.1% 10.3% 25.6% 5.1% Year Temperature (degrees Celsius) 1000 322 2000 30.4 2001 28.8 2002 31.8 2003 28.1 2004 28.2 2005 29.0 2000 28.3 2007 30.1 2008 30.0 2009 (budget) Average 29.7 C 8.7% 1,038 1.143 1.434 1,508 1,639 1.771 1.872 2,090 2.433 2.725 8.0% 5.7% 11.7 16.4% 12.0% 12.0% Exhibit 2 French Region, 2009 Results Variance hoat Plan Volume Euros 000) (000) Actual Volume Euros C000) (000) 2 Sales Data Sales ice-cream (volume in litres) Sales specialties (litres) Revenue from distribution Total Sales 4,010 445 17.870 3,661 4,618 405 20.005 3,377 .128 (284) F U 4,455 21,540 5,023 23,461 1 ,921 F Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) 2,887 1,844 38.29 7,893 2,841 371 3,317 2,047 43.56 0,142 3,188 438 (1.240) (345) (67) U U U 410 Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin 1.121 693 368 298 36.02 100 38 316 F 1,015 855 3.02 8,663 40.03 388 8,233 430 F C Other Costs Supervision, energy, maintenance,... Depreciation Operating margin 2,200 487 2,324 5,872 4ez 5,560 - 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 861 507 1.078 1,141 908 510 1,139 1,070 810 mccnccc 788 192 1.242 1027 Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation e 2,322) Total identifiable assets 580 4.713 5.387 47720 5501 Conditions for tourism Average summer temperature 29.8 C 20.3C 29.2C 20.2C Compagnie du Froid, 5.A. Exhibit 1 Examples of Standards for the 2009 Profit Plan (Spanish Region) Standards Percentage of volume from specialties Spain 10% Selling prices (in Euros) Ice-cream (per litre) Specialties (per litre) 4.42 8.13 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) 2.61 1.51 2.12 8.13 107.20 11.04 72% Volume Dairy ingredients-ice-cream (% of volume) Other ingredients-ice cream (grams per litre) Dairy ingredientsspecialties (% of volume) Other ingredientsspecialties (grams per litre) 48 93% Exhibit 3 Italian Region, 2009 Results Variance Profit Plan Actual Volume Euros Volume Euros 7000) (000 000000) Sales Data Sales ice-cream (volume in litres) Sales Specialties (litres) Total Sales 2.453 272 2725 10,987 2.232 13.199 2,480 276 2,756 11,100 2 253 13,359 Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) 4.983 1,864 1,275 33. 10 1,885 300 1,895 1,296 36.03 4,086 1,032 328 ccc 670 Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin 259 196 24 24 889 425 220 257 197 23.29 430 " nan 212 4.717 4,795 Other Costs Supervision, energy, maintenance,... Depreciation Operating margin 1,142 109 3,466 1,135 109 3,551 " " 329 315 108 344 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 198 314 1,328 558 122 1.288 "c C ca " 574 122 193 ASA 517 108 (14) Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 3.200) Total identifiable assets 377 357 2.764 2.229 Conditions for tourism Average summer temperature 29.7C 29.8C Exhibit 4 Spanish Region, 2009 Results V ariance Poth Plan Volume Euros rooo (000) Actual Volume Euros 000 (000) Sales Data Sales ice-cream (volume in litres) Sales Specialties (litres) Total Sales 3,685 409 4,094 16.294 3.330 19,624 3,575 15,507 400 __ 3.251 3,975 18,758 (8663 Cost of Goods Sold Cost ice-cream Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) 2,653 1,769 34.37 6.923 2,670 279 2,175 1,450 29.21 2.202 238 1,318 468 381 033 Cost specialties Dairy ingredients (litres) Other ingredients (100 gr.) Labor (hours) Contribution margin 299 37.09 571 994 633 301 7.824 362 275 34.73 283 8,924 1.100 Other Costs Supervision, energy, maintenance,... Depreciation Transfer from France Operating margin 2,145 391 2.168 301 2.120 4.241 5,288 2.120) (1.047) 730 413 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 827 1,400 620 100 758 (22) 424 (11) 77 786 1.408 844 100 193 11491_111772 158 _1028 98 Identifiable Assets Cash (average) Accounts Receivable (average) Plant and equipment (net of depreciation 1.680) Total identifiable assets 268 423 4.744 1266 4.827 5.201 Conditions for tourism Average summer temperature 30.2C 28.5C Exhibit 6 Historical Data-Temperature and Sales Volume Volume Growth 8.7% 15.5% 18.5% France Year Temperature Sales Volume (desrees Celsius (000 litres) 1995 27.7 1.344 1990 29.2 1.435 1997 28.4 1,484 1998 30.9 1,714 1999 32.9 2,031 2000 27.3 1.984 30.0 2.208 30.5 2.489 2003 2.781 2004 30.0 2,998 2005 20.7 3,216 2000 3,445 2007 3,797 2008 20.4 4,087 2000 (budget) 4,455 Average 29.8 C 11.3% 12.7% 10.0% 30.8 30.3 20.0 7.3% 7.1% 10.2% 7.6% 9.0% 9.1% 29.0 Spain Year Temperature Sales Volume Volume Growth (degrees Celsius) (000 litres 1996 30.8 1.080 1990 31.2 1.272 18.9% 1007 1.402 10.2% 1998 31.6 1.885 20.2% 1999 1.852 2000 2.008 8.3% 2001 1.984 -2.1% 2002 2.033 3.5% 2003 2.231 0.8% 2004 2.481 11.2% 2005 2.684 8.2% 2008 32.4 3.038 13.1% 2007 30.4 3.346 10.2% 2008 31.0 3.722 11.3% 2000 (budget) 4,094 10.0% Average 10.2% co 29.0 30.4 31.8 30.2 C Compagnie du Trold, S.A Exhibit 6 Historical Data-Temperature and Sales Volume (Continued) Italy Sales Volume (000 litres Volume Growth 802 16.1% 10.3% 25.6% 5.1% Year Temperature (degrees Celsius) 1000 322 2000 30.4 2001 28.8 2002 31.8 2003 28.1 2004 28.2 2005 29.0 2000 28.3 2007 30.1 2008 30.0 2009 (budget) Average 29.7 C 8.7% 1,038 1.143 1.434 1,508 1,639 1.771 1.872 2,090 2.433 2.725 8.0% 5.7% 11.7 16.4% 12.0% 12.0%