Located in Fargo, North Dakota, the Brant Freezer Company manufactures industrial freezers. These freezers come in one size and are distributed through public warehouses in Atlanta, Boston, Chicago, Denver, Los Angeles, Portland, and St. Louis. In addition, some space is used in the companys Fargo warehouse. Young Joaquin (J. Q.) Brant, with a fresh M.B.A. degree from the University of South Alabama, returned to the family firm, where he had once worked during summers. On his first day of work, J. Q. met with his father. His father complained that they were being eaten alive by warehousing costs. The firms controller drew up a budget each year, and each warehouses monthly activity (units shipped) and costs were tallied.

Exhibit 3.A Brant Freezer Warehouse Performance

Exhibit 3.B Brant Freezer Company Income Statement

Exhibit 3.A shows actual 2012 figures for all warehouses, plus actual figures for the first five months of 2013. Projected 12-month 2013 budgets and shipments are also included. Exhibit 3.B shows the income statement for 2012. Exhibit 3.C is the 2012 balance sheet. If you are familiar with Excel or other spreadsheet software, you might try using it to answer the questions that follow.

Exhibit 3.C Brant Freezer Company Balance Sheet

Questions

When comparing performance during the first five months of 2013 with performance in 2012, which warehouse shows the most improvement?

When comparing performance during the first five months of 2013 with performance in 2012, which warehouse shows the poorest change in performance?

When comparisons are made among all eight warehouses, which one do you think does the best job for the Brant Company? What criteria did you use? Why?

J. Q. is aggressive and is going to recommend that his father cancel the contract with one of the warehouses and give that business to a competing warehouse in the same city. J. Q. feels that when word of this gets around, the other warehouses they use will shape up. Which of the seven should J. Q. recommend be dropped? Why?

The year 2013 is nearly half over. J. Q. is told to determine how much the firm is likely to spend for warehousing at each of the eight warehouses for the last six months in 2013. Do his work for him.

When comparing the 2012 figures with the 2013 figures shown in the table, the amount budgeted for each warehouse in 2013 was greater than actual 2012 costs. How much of the increase is caused by increased volume of business (units shipped) and how much by inflation?

Use the 2012 income statement and balance sheet to complete a strategic profit model for J. Q.

Holding all other information constant, what would be the effect on ROA for 2013 if warehousing costs declined 10 percent from 2012 levels?