Compagnie du Froid, S.A Case Solution

1. How would you explain the difference between the Italian region's expected and actual profit?

The difference between Italian regions expected and actual profit is due to the variance in sales, cost and volume of direct material, labor, overhead and selling, and administration expenses. The actual profit of the Italian region is 517 Euros, which is 58 Euros more than the planned profit. The table below clearly explains 58 Euros difference between the Italian region's expected and actual profit.

2. What was the impact of the change in sales volume?

As mentioned, the total sales variance, the sum of the sales variance of ice-cream and specialties, is equal to 160 Euros. A major part of this variance is due to the change in sales volume of ice-cream and specialties. The sum of the change in sales volume is 31 liters, which include 27 liters change in the ice-cream sale and 4-liter change in specialties sales. Out of 160 Euros increase in sales revenue, a 96 percent increase is explained by an increase in sales volume, i.e. 153.54 Euros. In the table below, the division of total sales volume variance in ice cream and specialties is given.

3. What was the impact of the change in the prices charged for ice-cream and specialties?

Changes in the prices charged for ice-cream and specialties have a little impact on total variance in sales revenue and profitability. The per liter increase in the price of ice cream is 0.01 Euros while the specialties per liter price charges decrease by 0.03 Euros. The combined effect of this price change is shown in the table. Only a 3 percent increase in sales revenue is explained by the sales price variance of ice-cream and specialties.

4. What was the impact of the changes in the cost of raw materials, labor, and fixed costs?

As the per-unit cost of the direct materials, dairy ingredients (liters), decreases, the overall impact of the cost of raw materials and labor is positive on the profitability of the firm. The total increase in the contribution margin of the company due to the cost reduction of raw materials used in ice-cream is 42.14 while in the case of specialties, there is a 4.23 Euros increase in contribution margin. Moreover, the change in fixed costs also has a positive impact on the profitability of the firm. Two main fixed expenses, rent, and depreciation of trucks remain the same, having no impact on profitability. While the costs related to supervision, energy and maintenance decrease by 7 units, adding profitability to the firm.

5. How much of the changes in the cost of raw material and labor are due to changes in the prices of the raw materials and wages of labor, and how much are due to manufacturing efficiencies? 

Table given below clearly show that to which extent the variance in the cost of raw material and labor are due to changes in the prices of the raw materials and wages of labor, and to which extent are due to manufacturing efficiencies. For example, in the case of change in the cost of labor of ice cream, the change in the price of labor is 1.44 and change in labor efficiency is 26.56.

6. How would you evaluate the performance of the manager of the Italian Region?

The performance of the manager of the Italian region cannot be evaluated thoroughly on the basis of the overall profitability of the company as there are some factors that are affecting the profitability of the firm but they are not under the control of the manager. In this case, the manager cannot be regarded as the reason for lower profitability due to high wages and lower efficiency. The lower efficiency is due to the usage of old machines.