Compagnie Du Froid Essay

2757 words - 12 pages

To: Jacques Trumen
Subject: Compagnie du Froid Analysis
Date: November 6, 2014
Campagnie Du Froid is a summer ice-cream business founded in 1985 by the father of
Jacques Truman. In 2007, after the passing of his father, Jacques Truman took over the business
and emphasized an aggressive growth strategy. By 2009, Campagnie Du Froid was a market
leader in the eastern part of France, northeastern coast of Spain, and northern Italy. Each region
had its own manager and the main headquarters was located in Paris. Jacques believed
decentralizing the decision making as much as possible. Each region had its own manufacturing,
marketing, distribution and sales organization. ...view middle of the document...

Andres Molas is the
manager of the Spanish region and his performance had been outstanding up until 2009. There
had been many problems that sprung up in 2009 causing the performance of the Spanish region
to decline. The first problem was the new machines weren’t working correctly until late August
which caused them to run out of capacity several times. The Spanish division had to import
product from the French division at a transfer price of full cost plus 5% profit for the
manufacturer. On top of that, the Spanish division had to absorb expenses of people traveling to
France to fit the Spanish packaging to the French production line. Lastly, there were
unseasonably cold temperatures that had driven down tourism and demand. As a result, Andres
had to cut prices in order to stimulate demand and keep with competition.
Traditionally, each manager was given the same bonus of 2% of corporate profits, but the
results in 2009 challenged the fairness of this evaluation system. The Spanish region performed
extremely poor and had driven down company’s profits to the lowest it’s been in ten years.
Jacques thought it was unfair for the French and Italian managers to pay for the problems of the
Spanish region but wasn’t sure Andres Molas was to blame for the poor results. Jacques Truman
needs to make many decisions regarding the evaluation and performance of each region.
In order to properly evaluate the difference between the expected profit versus the
actual profit in the Italian region, a causal analysis was conducted on the Italian region. The
causal analysis in Exhibit 1 allowed us to better understand the Italian business. First, we
evaluated the impact of the change in sales volume. The sales volume variance (Flexible budget
in Euros – Static Budget in Euros) produced a sales variance of €119 for Ice Cream sales and €34

for Specialty sales; this represented a profit variance of €58. While the sales volume variance is
important, it is also important to understand the amount of sales growth that is attributed to the
temperature change versus actual performance of the business. There was €19 worth of growth
strictly from the change in temperature between both ice cream sales and specialty sales. The
profit side of the causal analysis resulted in a €8 variance attributed to the temperature change
and a €50 variance related to performance which resulted in a total volume for profit increase of
The change in prices also had an impact on the Italian region’s expected and actual profit
because the €7 total sales variance represented an increase of €7 profit for the actual profit. The
€7 variance was calculated by the favorable €20 variance for ice cream sales and an unfavorable
variance of €13 for specialty sales (€20-€13=€7). This proves that the Italian region can charge
slightly more for their ice cream sales given the increase in demand, while the increase in
demand of the specialty product could be more attributed...

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