Unit 4 Integration Case Information

Mr. Savvy owns 100% of Parent Company (PC). Mr. Savvy has been an entrepreneur all his life and as a result owns four businesses through PC which include Holdco Ltd. (Holdco), a holding company, Hair Contours Ltd. (HC), a hair solon, Cracker Johns Ltd. (CJ), a family restaurant and Sunshine Ltd., a tanning salon.

Mr. Savvy is 60 years old and is contemplating retirement. Mr. Savvy has thought about selling PC to his son Justin but has decided against this since he feels that Justin does not possess any street smarts to run businesses of this magnitude.

Mr. Savvy plans to sell his businesses one by one over the next few years. He is considering selling Holdco this year. Holdco owns 100% of Swiss Sub Ltd. (SS). Swiss Sub is a food franchise that sells freshly toasted sandwiches made to customers specifications. In addition, Swiss Sub sells pre-made sandwiches which include roast beef, egg salad, tuna, salami and ham. Swiss Sub also sells salads, soups, various beverages and cookies.

Swiss Sub has three stores located in Thunder Bay and is run by Mr. Savvys brother Gerry. Gerry and Mr. Savvy have had a rocky relationship over the years, however, Mr. Savvy indicates that they were able to put aside their differences five years ago and Gerry is now the manager of Swiss Sub.

You, Yorkville University CPA Student, were just recently employed by Mr. Savvy as a junior controller of PC. Mr. Savvy has requested that you provide him with a report which contains an analysis of Swiss Subs operations and any changes you think would improve the operations. Mr. Savvy has indicated that it is important to ensure that Swiss Sub is running smoothly before it is put up for sale. He reminds you not to let Gerry know of the possible sale as he would just worry about his job which is unfounded as he intends to have Gerry help him manage some of his personal real estate investments.

Mr. Savvy also notes that most of the accounting functions such as payroll, inventory purchases, payables etc. for Swiss Sub are also conducted at PC. Your meeting with Gerry is summarized in Exhibit I.

EXHIBIT I

Notes from Meeting with Gerry

Gerry manages the busiest Swiss Sub store; the other two stores are run by store managers who report directly to Gerry.

You spend some of your time chatting with employees. You overhear a cashier named Dan reminding Gerry that he has to leave early today to perform his community service duties due to a minor incident at the mall 5 months ago. Gerry tells Dan to have fun. Gerry later tells you that Dan is his newest employee who he hired 4 months ago. Gerry indicates that Dan closes the store at Midnight as he leaves Swiss Sub at 8:00PM.

You comment that it is wonderful that security cameras are all over the stores. Sherry the cashier laughs and tells you that cameras are for visual and decorative purposes only.

Gerry tells you that he feels that he is not recognized for all the hours he dedicates to the three stores. He tells you that he gives himself a $1,000 bonus each year for his efforts since he got hired from petty cash. Gerry also tells you that he has informed Mr. Savvy of this in passing. You remember that PC does not reconcile Swiss Subs pretty cash since it is deemed to be insignificant. It is also your understanding that Gerrys salary of $50,000 is equivalent to fair market value.

You speak to the janitor, Mr. Rogers, who tells you that he is fed up with Dans friends always coming into the store before closing as they have no respect for anyone and eat like they have never seen food.

Gerry tells you that his new drive-through window is working out wonderfully. He indicates that currently his store is the only store of the three Swiss Sub locations that have a drive-through, as it is the busiest. He indicates that Sherry has been really efficient taking orders, preparing orders for the customer and processing their payments. Gerry explains that the customer s love Sherrys sunny personality and she has regular customers that go through the drive-thru every day.

You ask Gerry how profits have been. He comments that is has been business as usual however over the last few months he has noticed that his inventory appears to be lower than the amount of sales that he is generating. Gerry indicates that he is looking into the problem but is baffled. Gerry also indicates that he is not sure what calculations he should do that will help him quantify inventory discrepancies compared to sales levels which will alert him to an inventory problem in the future. He adds that to date his inventory and sales analysis is limited to comparing current inventory and sales levels to the prior year.

Gerry is upbeat that the operation is running smoothly. Although he indicates that Jenny who has been a cashier for a year and a half is rather clumsy as she always seems to be voiding transactions because of punching incorrect orders into the cash register. Gerry has also noticed that as Jenny prepares a customers order she takes her time.

Gerry indicates that he has tried to create a pleasant work atmosphere by allowing employees to receive free meals. He explains that employees are giving $5.00 worth of food for lunch and dinner for their meals. The meal receipts are located in a drawer by the cash register. Employees fill out the vouchers and give them to whoever is on cash.

Gerry explains that Sherry is extremely helpful as she aids him in opening the store and deposits all of the cash for from the day before in the bank each morning. Gerry also explains that Sherry compares the cash register tapes to the deposits.

Gerry informs you that in order to increase employee moral he has recently implemented an employee of the month recognition program whereby an employee is selected each month and given $50. According to Gerry he selects the employee of the month based on the number of hours they are working and whether they show up on time to work. You notice Jenny has been employee of the month two months in a row.