Study the Starbucks store in Exhibit 1.2 on p. 7. Suppose that for next year a particular store budgeted revenue of €330,000, a 10 per cent increase over the current revenue of €300,000. The actions listed in Exhibit 1.2 resulted in six new budgeted products and a total advertising budget of €30,000. Actual results were as follows:

Exhibit 1.2

1. Prepare a performance report for revenues and advertising costs using the format of Exhibit 1.3 on p. 8.

Exhibit 1.3

2. Suppose the remaining cost elements of net income were not available until several months after the store implemented the plan. The net income results were disappointing to management – profits declined even though revenues increased because costs increased by more than revenues. List some factors that might have caused costs to increase so much and that management may not have considered when they formulated the store’s plan.

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Corrections and revisions of plans and actions THE MANAGEMENT PROCESS PLANNING Increase profitability through product growth and improved marketing CONTROL Actions • Expand number of drinks by 20% • Increase advertising expense by 50% Evaluation • Per cent increase in drinks sold • Per cent increase in advertising • Per cent increase in revenue INTERNAL ACCOUNTING SYSTEM Budgets, special reports • Customer surveys • Competitor analysis • Advertising cost/impact analysis • Revenue/advertising budgets Accounting system • Source documents such as invoices from ad agencies, register tapes • Actual revenue/advertising expenses from general and subsidiary ledgers Performance reports • Drink sales report • Actual versus budgeted revenue • Actual versus budgeted advertising expense Other information systems I Customer I surveys Competitor analysis Advertising impact Drink sales report