Introduction
Compagnie du Froid S.A., established by Jacques Truman’s father in 1985, is a key contender in the summer ice cream market. It presently has operations in the Spanish, Italian, and French areas, each overseen by a capable manager with the authority to make business decisions for the rest of the headquarters (Simons & Davila, 2017). The budgeted mild temperatures mostly influenced the sales goal, but other factors also played a role. Some of the additional circumstances were known to a few of the regional managers. They were considered into the initial budget provided to the central office, limiting the impact on sales.
Background
Jacques Truman’s father created the Compagnie du Froid, S.A. ice cream firm in France in 1985. In 2009, Jacques took over the management and extended it into Spain and Italy, but his major focus was on developing new businesses (Simons & Davila, 2017). Jacques retained control over areas by implementing a strategic profit plan whereby each regional manager had to submit their profitability plan by November/December before beginning a new financial year (Simons & Davila, 2017). Jacques believed that the company should reward shareholders for the danger of locking up capital in the company, and he anticipated a respectable return on their investment.
Problem
The case study is about the Compagnie u Froid, S.A. The owner and major shareholder of the company reviewed the performance of all of its three units France, Italy, and Spain. The productivity examination of all three different regions reveals that Spain’s performance was dreadful, causing its profit to plummet to its lowest level in ten years. Every regional manager receives the same reward of 2% of corporate profits from the company’s president (Simons & Davila, 2017).
Therefore, the company owner has to decide whether the poor performance of the Spain region should be treated independently. Consequently, the regional manager should also be affected by the poor performance of the Spain-based business. Each manager depends on the company’s overall profit, and each manager receives 2% of the cooperation profit.
Issues in Relation to the Problems
Ice cream sales in the Italian region exceeded budgeted volume by 1.1 percent at the end of 2009. The temperature, which has been good as originally budgeted, has become one of the contributing causes to this success. With good climate conditions of 29.7 degrees Celsius, it was predicted that the volume of sales would peak at 2,725 liters. Based on actual temperature measurements of 29.8 degrees Celsius, sales volume increased to 2,756 liters, a 31-liter surplus over the anticipated amount of 2,725 liters (Simons & Davila, 2017). The effectiveness and payments made against the budget were altered by changes in labor, fixed costs, and raw materials. The ancient machinery brought in from France for manufacture caused a loss in productivity.
Analysis and Discussion of Problems and Issues
Despite the region’s manufacturing issues, the Italian regional manager performed very well. The director met his sales targets on time and within budget and expanded his company’s product distribution channels to the western Italian coast. When comparing the success of the Spanish and French areas based on available data, the Spanish leader outperformed the French because he was imaginative in generating goods related to the company’s primary business that other areas intended to embrace (Simons & Davila, 2017).
Due to the terrible weather, the director was forced to reduce his prices to stay competitive while keeping his advertising up to win market share. Sales volume was expected to peak at 3685 liters with a suitable weather condition of 30.2 degrees Celsius. However, based on actual readings of 28.5 degrees Celsius, sales volume declined to 3575 liters, leading to 110 shortfalls underneath the budgeted amount of 3575 liters (Simons & Davila, 2017). Nonetheless, market share in traditional regions fell as he expanded into the west coast. He was losing customers in locations where he had strengths while growing.
Recommendations
Firstly, we recommend that the ice cream transfer be accounted for in a manner that accurately reflects resources consumed and profits generated at each location. The volume received by Spain and, in turn, sold to its customers should be accounted for in volume and revenue. This approach ensures both regions have product mixes, prices, variable costs, and fixed costs that correspond to volume sold and thus no inflated variances.
Second, rather than receiving a percentage of the company’s revenues, each regional head should receive a percentage of the profits generated by their territory (Atrill, 2019). As a result, regional managers will be more innovative in identifying new markets and developing new goods to create revenue for respective regions. Finally, except for a few minor differences in operations, the Spanish and French region managers should be rated on the same criteria as the Italian region manager (Simons & Davila, 2017). All of the metrics used to evaluate the success of the Italian region manager should be applied to France and Spain, as they yield the same value regardless of region.
References
Atrill, P. (2019). Financial accounting for decision makers (9th Ed.). Eddie McLaney.
Simons, R., & Davila, A. (2017). Compagnie du Froid, S.A. Hbs.edu. Web.