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1、L o g oA Case Study on Fine Foods, Inc.By Flame_NAIGreat Plains Capital (PE)Fine Foods Inc. (US)Fine Foods Canada, Ltd.Other importersSMU1SMU2(Smith)SMU3Super markets & similar outletsInstitutional Customers Special ordersGovernmental Organizations, etc.Product MPTop ManagementR&DFinanceHuman Resour
2、ceSupply ChainManagementITIntroductionOutlineCase overviewProduct CostingSpecial OrdersPerformance EvaluationConclusion & Recommendations Case OverviewPerformance evaluationproblemNon-financial indexFinancial indexProduct costing allocationPerformance evaluation methodUnreasonable cost allocation wi
3、ll lead toTheinfluenceoftheunreasonablecostallocationA Enterprise pricing is not reason-ableB Product profitability is difficult to estimateC The error of production decision- making D Performan-ce evaluationtwomainproblemsinthecostallocationallcostsallocatetoitsproductscannotgetaaccuratemeasureofea
4、chproductsprofitabilitythewayofcostallocation(distributebyweight)istoosimpledirect calculated costs ：Raw material, packaging material, and direct production salariesSo,thecostcantcoveralltheincalculablecostAnalysis point 1Variable manufacturing costs:Electricity, steam, water, and warehouse Costs，ot
5、her incalculable costs(such as spoilage).Spoilage can be normal or abnormal.Normal Spoilage can be part of the cost of operation and therefore is part of the cost of good units produced.Abnormal spoilage is allocated to a loss from abnormal account.The freight cost is not irrelevant and should be al
6、located to the period cost (selling expenses). Analysis point 2:For the product (MP), The estimated freight cost is allocated based on the weight of product and is included in the sales price. Besides, the Fine Foods pays the freight.Mediaandsalespromotioncostsaresell-ingexpenses,whichbelongstoperio
7、dcost.Soincludingthemintheproductcostisunreasonable.Analysispoint3:MediaandsalespromotioncostsforSMU1andSMU2areallocatedtoproductgroupsandtoindividualproductsba-sedonweightofproductsold.Analysispoint4:Similarly,salesandmarketingcostsalsoshouldbetheperiodcost,whichisallocatedtoproductsbasedonsalesvol
8、umepreviously.Analysispoint5:Costsfortopmanagement,businessadministration,IT,HR,supplymanagement,andlogisticsareallocatedtothecostcentersandthenequallytoeachproduct.Thesecostsareallocatedtotheproduct,whichhastheverybighiddentrouble,Forinstance,themanagementcanhavealuxuriouslifeandpassedthemontotheco
9、stofproducts.Analysispoint1 thecosts(steamboilers,buildingmaintenance)areallocateddirectlytoproductsusingnetweightorgrossweightisabsurd.Analysispoint2Iftheallocationofremainingfactorycostsisafixedpercentage,thenallocationtoproductsisbasedonproductiontime.Ithardtosayjustbyproductiontime,thecostcanbea
10、llocatedappropriately.Werecommendthevolumeofproductionmaybeabetterstandardofdistributionwhichismorerelevant.Thiskindofcostcalculationmethodallocatesindirectcoststopro-ductswithdifferentcomplexityaccordingtothesamestandards,whichisnotappropriate.Whileactivitybasedcostingmethodshowsitsad-vantage.Resou
11、rcesActivityActivityDriverlabor costoffice rents Related management cost packagingpurchase the number of laborers labor costfuel costs Vehicle depreciation cost packagingtransportthe number of laborers transport mileage goods weight labor costwater and electricity costs rent packagingstorage the num
12、ber of laborers packaging valuelabor costwater and electricity costs packaging equipment depreciation subsidiary materials cost rent packaging operation the number of laborers asset value area of packaging materials Packaging operations center ThroughtheaboveanalysisTherearemanyunreasonablefactorsin
13、thecurrentproductcostingapproaches.Especially,itsunfairfortheproductdense,bulky,andheavy,suchasMP.So,Letshaveain-depthanalysisofspecialorder(virtuallyallproductMP)Special OrdersvSpecial Orders is one in which the contract specifies that it can be rejected within one year before delivery; otherwise i
14、t isnt special. Benefitsorderscontrolchannelofdistributionandseizethemarketopportunities.takefulladvantageofflexibleproductionCapacity.Loss of some normal ordersDefault cost Occupation of capital1.warehouse cost of materials and product2.disturb production design3.idle production capacity1.Decrease
15、the liquidity of cash 2 opportunity cost processBy ProductsRaw materialItspropertomakeadecisionbycontributionmargin,butSMU2didntconsiderallthefactorswhenusingthismethodFirstly,fixedmanufacturingcostshouldnotbeconsideredindecision-makingSecondly,defaultcostshouldbeamortizedwhenacceptingspecialorders;
16、Thirdly,specialorderswerenothandledspecially.RecommendationsvJIT (Just In Time)vPromote consumer preferenceTypesofresponsibilitycenterscostcenterRevenuecenterisresponsibleforsalesnotforthemanufacturingcostsofthesales.Costcenterisadepartmentthatgenerateslittleornorevenue.Adepartmentisresponsibleformi
17、nimizingcostswhilemaintaininganexpectedlevelofquality.revenuecenterinvestmentcenterprofitcenterTermsanddefinitions1Profitcenterisresponsibleforbothcostsandrevenuessoastogetagoodprofit.Investmentcenterisresponsibleforinvestments,costs,andrevenuesintheirdepartment.Contribution margin= revenues variabl
18、e expensesControllable profit= contribution margin- controllable fixed costsIncome before taxes=Revenues-all costs for a business unit other than taxes including some costs that are not under the managers controlComputationmethodsofindicatorsevaluateperformance:Termsanddefinitions2The importanceof a
19、 companys strategyIn China, we often say “Making a plan before your action contributing to success, or youll lose”. As to a company, realizing its strategy is of the utmost importance . After talking about the case, our team believes that when evaluating managers performance we should consider their
20、 contribution to realizing the strategy. The roles of the companys performance evaluationPerformance evaluation should be related with the realizing of a companys strategy. If manager make a big contribution to a companys strategy then he should get a high score and salary.Fine Foods Responsibility
21、centersInvestment centerCost center Profit center1Profit center 2Profit center 3 Fine Food CanadaSome productsSMUs are profit centersSMUs can manager their profit and some expensesAgency Costs in Fine Food Top management transfer their agency costs when evaluating performance, some costs are unfairl
22、y assigned to SMUs. As a result, we cant evaluate top management properly and many agency costs are bared by SMUs managers. Top managementManagers of SMUsAgency costsFine foods Performance evaluationCM1CM2CM3CM4OperatingProfitFour contribution margins and Operating Profit Operating ProfitAny problem
23、s?PWH Gross sales(Standard discounts)(Activity discounts)(Special discount activities for customers)Net sales(Variable manufacturing cost)(Fixed manufacturing cost)(Freight out)(Media)(Sales promotion)CM1(Media)(Sales promotion)CM2(Marketing and sales)CM3(Top management)(Business administration)(Inf
24、ormation system)(Human resources)(Supply chain)(Production)(External logistics for finished goods)(Markup - Manufacture expenditures)(Other fixed costs)CM4(Structural costs)(Total depreciation)Common expenses cant be controlled by SMUs managers.1.High sales revenue may be followed with high bad debt
25、 ratio.2.Some indispensible expenses may be cut down.3.External environment may influence the performance of SMUs managers. 4.Financial measures cant evaluate managers hard work on raising the developing potential of the company.Problems?Operating profit is not applicable Operating profit includes s
26、ome uncontrollable elementsCM4 are not reasonable BSCFinancial measures are only the tip of an icebergWhy? How?BSCFine foods Performance evaluationBSCBSCInvestment centerCost center Profit center 1Profit center 2Profit center 3Fine Foods Responsibility centersWhats our recommendation?BSCBalanced sco
27、re cardStrategygoals goalsgoalsgoalsStrategy should be detailed into goalsFine Food CanadaSome productsFinancialCustomerInternal business processLearning and growthBad debt ratioliquidityCM3Customer retentionCustomer acquisitionCustomer satisfactionQuick reactionEnough stockStock checking FrequencyG
28、ood service and other sales skillsNew productTeam performanceFactorsCritical Success factorsFinancial measureIs only one factor when evaluating managers performance. Good performance here is not enough to speak highly of a managerNon-financial measures are equally important to financial measuresExplanationConclusion & RecommendationsProducts cost is a symptomBalanced Score CardActivity-based costingPerformance evaluation is a problem 结束语结束语若有不当之处，请指正，谢谢！若有不当之处，请指正，谢谢！
