Question 2

Pinocchio Gelato Italiano (PGI) is an ice cream shop which started operations in Ghana two years ago. The company prepares its ice creams by combining two or three flavours and its secret milk sauce. PGI's shop is in East Legon, an accessible location in Accra, and has gained a lot of attention since its opening.

The focus of PGI is to provide quick service to its customers and to maintain consistency in the quality and taste of its ice creams. To maintain consistency in the flavour of its ice creams, PGI has set standard quantities of ingredients that should be used. It has also set standard times within which each ice cream should be prepared. The shop has a supervisor who provides inputs to the operations manager regarding the performance of the shop and its employees.

In its second year of operations, PGI opened its second outlet on the University of Ghana (UG) Campus and started serving cupcakes and cookies at this outlet. The operations manager of PGI found that the UG campus outlet is running at a loss, and it is not able to maintain the quality and taste standards of the ice creams. The operations manager also realised that the time taken to prepare the ice creams on the UG campus outlet is more relative to the East Legon outlet.

More so, the UG campus outlet is unable to serve all ice creams on the menu, and it has been identified that the wastage of ingredients is quite high. The wastage of the ingredients has caused further harm regarding cost, as there has been a steady rise in the price of milk for the past six months. Recently, many employees in the UG campus outlet have left their jobs. The employees who have resigned had concerns of being overly controlled and being blamed for problems that they did not have control over. It has also been identified that the employees in the UG Campus outlet had not received information on the standard quantities of ingredients.

Because of these problems, PGI is on the verge of closing the UG campus outlet. These problems have also affected the performance of the East Legon outlet as well. For effective performance management, all the ice cream shops should focus on setting benchmarks or norms for measuring their performance and should take corrective actions to reduce variances.

You are required to: Discuss how PGI can maintain consistency in the taste and quality of its ice creams across all its outlets. Also, explain how the implementation of a standard costing system can be useful to improve PGI's performance if the problems faced by PGI can be identified and solved by implementing the variance analysis approach.