Melinda sanders and her staff have a meeting scheduled tomorrow morning with Douglas Liddell, vice president of
Question:
Melinda sanders and her staff have a meeting scheduled tomorrow morning with Douglas Liddell, vice president of WCC's corperate information systems group, to discuss the direction of WCC north Americas chemicals and performance products division. sanders strongly believes that any investment in information systems should be directly support a specific business strategy. the question is, which investments should be made and what exactly should WCC's strategy be?
1. what is the critical issue(s) confronting WCC north America?
2. what changes, if any, should be initiated to address the critical issue(s)?
3. identify the risks and benefits of your proposed changes from the prospective of a) WCC north America cooperate management b) WCC north America line distribution management c) WCC north America customers.
4)what would be the impact on WCC north America operations if the proposed changes were successfully implemented?
5)what changes if any would you recommend in WCC north Americas information processing arrangements?
6) is Melinda sanders in a position to properly understand WCC north Americas problems? why or why not?
7)do you think WCC north Americas current situation is applicable across its global operations? how if at all does it change the nature of the problem?
performance control at happy chips inc.
Wendell Worthmann manager of logistics cost analysis for happy chips Inc. was faced with a difficult task. Harold L Carter the new director of logistics had circulated a letter from happy chips' only mass merchandise customer, buy 4 less complaining of poor operating performance. among the problems cited by buy 4 less 1) frequent stock outs 2)poor customer service responsiveness and 3) high prices for happy chips product. the letter suggested that if happy chips were to remain a supplier to buy 4 less, it would need to eliminate stock outs by 1) providing direct store delivery four times per week instead of three 2)installing an automated order inquiry system to increase customer service responsiveness (300,000) investment and 3) decreasing products prices by 5 %. while the previous director of logistics would most certainly have begun implementing the suggested changes, Harold carter was different, he requested Wendell prepared a detailed analysis of happy chips probability by segment. he also asked that it be prepared on a spreadsheet to permit some basic analysis. this was something that Wendell had never previously attempted and it was needed first thing in the morning.
company background
happy chips Inc. is the fifth largest potato chip manufacturer in the metropolitan Detroit market. the company was founded in 1922 and following an unsuccessful at national expansion has remained primarily a local operation. the company manufactures and distributes several varieties of potato chips to three different types of retail accounts; grocery , drug, and mass merchandise. the largest percentage of business is concentrated in the grocery segment, with 250 retail customer locations accounting for 2,100,000 annual unit sales and more than 74 % of annual revenue. the drug segment comprises 140 customer locations which account for 365,000 annual unit sales and more than14% of annual revenue. in the mass merchandise segment, happy chips has one customer with 6 locations that account for 400,000 annual unit sales and almost 12% of annual revenue. all distribution is store direct, with delivery drivers handling returns of outdated material and all shelf placement and merchandising.
recently, happy chips has actively sought growth in the mass merchandise segment because of the perceived profit potential. however, while the company is acutely aware of overall business profitability, there has never been an analysis on a customer segment basis.
Performance Statistics Wendell recently attended a seminar at a major midwestern university concerning activity based costing. He was anxious to apply the techniques he had learned at the seminar to the current situation, but was unsure exactly how to proceed. He did not understand the relationship between activity-based costing and segment profitability analysis, but he knew the first step in either is to identify relevant costs. Wendell obtained a copy of Happy Chips' most recent income statement (Table l ). He also knew specific information concerning logistic costs by segment (Table 2). All deliveries were store-direct with two deliveries per week _ to grocery stores, one deliverivery per week to drug stores and three deliveries per week to mass merchandisers. The cost of delivery to each store was dependent on the type of vehicle used. Standard route trucks were used for drug stores and grocery stores, while extended vehicles were used to accommodate the volume at mass merchandisers. Selling prices for each unit were different for grocery ($1. 70), drug ($1.90), and mass merchandise ($1.40) customers. Wendell was also aware that Buy 4 Less required Happy :---- Income Net Sales Interest and Other Income Cost and Expenses Cost of Goods Sold Marketing, Sales, and Other Expenses Interest Expense Total Expenses Earnings before Income Taxes Income Taxes Net Earnings $4,8 23,500 18,000 $4,841,500 3,068,250 1,512,350 22,450 $4,603,050 220,450 61,725 $ 163,225 TABLE 1 Income Statement TABLE2 Cost Category/Segment Grocery Drug Mass Merchandise Annual Logistic, Stocking Cost ($/Delivery) $18 $16 $35 Costs by Segm Delivery Cost ($/Delivery) $20 $20 $35 by 464 Cases Chips to cover the suggested retail price (generally about $3.00 per unit.regardless of channel with a sticker bearing its reduced price. The machinery required to apply these ' has had an annual lease cost of$40,000.00. Labor and materials cost an additional $ .06 per Conclusion is As Wendell sat in his office compiling information to complete the segment profitability analysis, he received several unsolicited offers for assistance. Bill Smith, manager of -marketing, -urged him not to bother with the analysis: for Buy 4 Less is clearly our single most important customer. Look at the sales per store. we should immediately implement the suggested changes. of( Steve Brown, director of manufacturing, disagreed. He felt the additional manufacturing cost required to meet Buy 4 Less's requirements Was way too high We should let Buy 4 Less know what we really think about their special requirements. Stickers, of all things! What business do they think we are in? The sales force had a different opinion. Jake williams felt the grocery segment was most important Just look at that volume! How could they be anything but our best customers? The broad interest being generated by this assignment worried Wendell. Would he haw to justify his recommendations to everyone in the company? Wendell quietly closed his office door. Based on the available information and his own knowledge of ABC systems, Wendell Worthmann needed to complete the segment profitability analysis and associated spreadsheet before his meeting with Harold in the morning. With all these interruptions, it was going to be a long night.
1) what is the difference between activity based costing and segment probability analysis? how would you counter the arguments by other managers concerning the most attractive segments? using relevant cost provided above, determine the probability for each of happy chips business segments.
2) based on your analysis, should happy chips consider the changes desired by buy 4 less? why or why not?
3) should happy chips eliminate any business segments? why or why not?
4)if the price to mass merchandise stores were to increase by 20 %would that change your answer to the previous question?
5)are there factors other than segment probability that should be considered? if so what are they?
LOGI 1000 - Case Study 9 - (p 462) | |||
Income | |||
Net Sales | $ 4,823,500 | ||
Interest & Other Income | $ 18,000 | ||
Net Income | $ 4,841,500 | ||
Cost & Expenses | |||
Cost of Goods Sold | $ 3,068,250 | ||
Marketing, Sales, & Other Expenses | $ 1,512,350 | ||
Interest Expense | $ 22,450 | ||
Total Expenses | $ 4,603,050 | ||
Earnings Before Income Taxes | $ 238,450 | ||
Income Taxes | $ 61,725 | ||
Net Earnings | $ 176,725 | ||
Assumptions Table | ||||||
GROCERY | DRUG | MERCHANDISE | Merch2 (-5%) | Merch2 (+20%) | ||
# Customers | 6 | 0 | ||||
Weekly Deliveries | 4 | 4 | ||||
Annual Sales (Units) | - | - | ||||
Sell Price / Unit | $ - | $ - | ||||
Annual Sales ($) | $ - | $ - | $ - | $ - | $ - | |
COGS / Unit | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! | |
Ann. Lease of Labeler | $ - | $ - | ||||
Cost / Unit to Label | $ - | $ - | ||||
Automated Order Inq. Sys. | $ - | |||||
Logistics Cost | ||||||
Stocking Cost ($/Delivery) | $ - | $ - | ||||
Delivery Cost ($/Delivery) | $ - | $ - | ||||
Happy Chips Segment Profitability Analysis | |||||
Retail Accounts: | GROCERY | DRUG | MERCHANDISE1 | Merch2 (5% Red) | Merch2 (20% Inc) |
Unit Sales | 0 | 0 | 0 | 0 | 0 |
Trade Price | $ - | $ - | $ - | $ - | $ - |
Revenue | $0 | $0 | $0 | $ - | $ - |
COGS/unit | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! |
UnitSales/segment | 0 | 0 | 0 | - | - |
Labeling cost | 0 | 0 | $ - | $ - | $ - |
COGS/segment | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! |
Net Margin | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! |
Controllable Fixed Costs: | |||||
Stocking Cost | $0 | $0 | $0 | $0 | $0 |
Delivery Cost | $0 | $0 | $0 | $0 | $0 |
Total Controllable Fixed Costs: | $0 | $0 | $0 | $0 | $0 |
Profit/segment | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! |
Automatic Order Inq. Sys | $ - | $ - | |||
#DIV/0! | #DIV/0! | ||||
Core Concepts Of Accounting Information Systems
ISBN: 9781118738108
1st Canadian Edition
Authors: Mark G. Simkin, Carolyn A. Strand Norman, Scott Paquette