Problems Facing Campagnie Du Froid Economics Essay

Problems Facing Campagnie Du Froid Economics tryThe aim of this report is to analyse the hassles brass instruments by Jacques Trumen, the CEO of Campagnie du Froid S.A., by reviewing the surgery of the 3 regional conductors. The report is based on the financial compend and the evaluation of the facts and figures provided in the case teach. This report ends with recommendations for a fair compensation system.In this case, Jacques has to evaluate the work of the 3 regional businesses in France, Italy and Spain and settle regarding the compensation of the managers according to that. Until recently, he was giving the gift of 2% of the collective utility to each one of the managers. However, in 2009 the performance of Spain region was truly poor and had affected the overall winnings of the company. This has forced Jacques to rethink intimately the fairness of the evaluation system.The report answers Jacques problem in deciding the strategical changes in the compensation sy stem by evaluating the performance of each region.The Italian sectionTaking into conside dimensionn all the facts and figures in the case study given, it domiciliate be tell that Peirre Giraux, the regional manager of Italy, performed good in 2009. He could get 12.6% more gelt than was estimated the profit plan. The negative un til nowness of his equal of goods sold (COGS) is expected as he has change magnitude the gross gross gross sales peck. The COGS increased at a discredit rate in standardizedness to the sales which resulted in a positive partitioning in his theatrical role bank which increased by 1.65% higher than the budgeted figure.His performance is admir fitting because although the toil is methamphetamine hydrochloride pickax increased, he could reduce other be like supervision, electricity, and maintenance by 7.000 Euros, this result in increasing the operating margin by 2.45%.The overall SA write down variance is unfavourcapable alone few of it is contributed repayable to the increase in sales masses. Pierre needs to hasten a meliorate control on some costs like the administrative salaries and write downs as it should not pay off increased by the up-to-date rate. The selling pop outlays increased by close to 10% whereas total sales grew by only 1.2%. he is not accoun evade for the unfavourable variance in the allocated interchange ability expenses as it is the same for all regions and it is touch on by the companys underlying off spyglass. The overall outcome of Pierre performance was good.The ice Cream TransferAfter analysing Exhibit 5, it is clear that blue jean, the manger of the French region, has considered COGS, other costs, depreciation and SA expenses with a profit margin of 5% for sharp the selling wrong of the ice cream. Adding COGS and other costs was fair on Jeans part as these are variable costs and are bound to increase with the increase in production. Jean added 0.04 Euros per litre under SA expenses which corresponds to allocated central office expenses. It is un barelyified to add it because this cost is intractable by the companys central office and is equally incurred by all the divisions. In addition, Jean could rush added the depreciation cost because it would have remained the same even if Spain had not trade ice cream from French region. By adding the depreciation cost to the cost of ice cream transferred, Jeans depreciation cost went down and his profit was increased considerably. So this way work outed somewhat in favour of the French region. France benefited from it by increasing sales masses at a depressive disorderer fixed cost (depreciation and central office expense added to the selling price) and Spain enjoyed the advantage by satisfying its brashness deficit at a cost lower than its own selling price in the Spanish market even after a price curve. That is why it can be said that the ice cream transfer was a win-win situation for Spain and Fra nce regions.The Spanish Region2009 was a problematic year for the Spanish region for many reasons. The pastime points specify the main 3 factors that worked against Spain and how much did it cost Andres.1- Too low temperature according exhibit 6, for the first time Spain had encountered such low temperature in the last 7 years. Last time the temperature had gone below 28 C, Spain had experienced only 3.5% volume growth. Moreover, in 2001, when Spain had experienced 28 C, the volume growth rate had dropped down -2.1%. If we follow Jacques thumb rule, then predicted volume growth should be only 4.9% instead of the planned 10%. However, it was better than that as it comes out to be 6.8% (see table 1). So it can be said that Andres performed well against the natures odds by maintaining a higher volume growth than that predicted by Jacques thumb rule.Table 1 (The Spanish Region) evaluate sales for 20094.094Proposed increase10%Sales for 2008*3.722Actual sales for 20093.975 parachute in 2 009253% Rise in 20096.80%* Sales for 2008= expected sales for 2009/ (1+propesed % increase)2- Machinery problem Spanish division faced the machinery problem. Due to which, it had to upshot ice cream from France at a higher variable cost. Andres also had to swallow the dissipation cost of supervision, energy, and maintenance due to the continuous repair and adjustment work in the machines. This increased his cost of production by 21.000 Euros which normally should have gone down because of lower production in his manufacturing building block.3- Price cut by competitor the problem for Spain did not stop here. Due to price reduction by competitor, the company had to cut its price by 1.5% and preoccupied some of sales revenue in this process.But, Andress decision to import ice cream from France came out to be fruitful as he was able to satisfy its volume deficit. In spite of the fact that he had to secure ice cream at a higher variable cost, but still it was cheaper than his own se lling price (after price cut). This contributed 178.000 Euros to his profit (see table 2).Table 2 (The Spanish Division)Per unit cost make out in 000 EurosNotesCost charged by France3.532.126Subcontracted transportation*0.1377Incurred due to import from FranceDelivery expenses**0.19115These are not completely fixed costs and attend on sales volume. Higher the sales higher the expenseSelling expenses***0.20119These are not completely fixed costs and depend on sales volume. Higher the sales higher the expenseTotal cost4.052.437Selling price4.342.616Profit0.29178*subcontracted transportation cost per unit = total subcontracted transportation cost / total volume transferred**delivery expense per unit = actual delivery expense / actual volume*** selling expense per unit = actual selling expense / actual volumeOverall, it can be said that due to few unavoidable circumstances, Andres had to face losses which ruined the performance of his division.The French RegionFrance seems to be the l ift out performer but by a close look at exhibit 2, it is observable that Jeans performance was poor because of 3 major reasons. First, Jean employed a major workforce on an hourly keister to supervise the production and maintain the machines. This increased the supervision, energy, and maintenance costs by 118.000 Euros which reduced his operating margin fundamentally. Secondly, Jean added the depreciation and central office expenses to his selling price for ice cream transfer to Spain. This is unjustified as these expenses are fixed costs and would have remained the same even if Spain had not imported from France. However, including these expenses worked well for Jean as his fixed costs was distributed by a higher sales volume and increased his profit by 79.000 Euros (Depreciation + SA, from exhibit 5). Thirdly, it should not be forgotten that 603.000 litres of his sales volume came from transferring ice cream to Spain and 79.000 Euros of sales revenue from diffusion business. Therefore, his actual total sales revenue from the companys core business was only 21.256.000 Euros (from exhibit 2). This is 1.36% less than the estimated sales revenue in the profit plan, and that is why Jean was not able to meet his projected target. In addition, if we remove the profit earned from exportation i.e. 180.000 Euros and dispersal business 29.000 Euros, then his actual profit comes down to 1.033.000 Euros which is just 0.58% above budget (see table 3). However, Jeans decision to invest in distribution business was economic to the company because he increased the revenue by 79.000 Euros. Assuming that the negative variance of 3.000 Euros as truck depreciation and 47.000 Euros as delivery expenses is due to the new business yet Jean managed to bill a profit of 29.000 Euros in the first year itself.Table 3 (The French Region)Estimated profit in 20091.027Total actual profit in 20091.242Profit from ice cream export*180Profit from distribution export**29Profit from ice cream business excluding export and distribution1.033Profit above estimated6% profit above estimated0.58%*profit from ice cream transfer = total actual profit **profit from distribution export = revenue from distribution (variance in delivery expense + variance in depreciation of trucks).Conclusion and RecommendationsAfter investigating the case, it is evident that Andres can not be blamed totally for the depressing performance of Spain. Spain suffered from multiple bad circumstances in 2009, and Andres applied every invention to overcome it. In spite of Jeans decision of the distribution business was profitable to the company but his overall performance was below the expectations. Consequently, Pierre comes out to be the best performer out of the 3 regional managers. So, it is significant to keep certain factors in mind when deciding the compensation of a manager. In order to keep employees motivated to perform better, their compensation bonus should be directly linked to their own divisions profit. Jacques should decide a ratio of percentage of corporate and regional profits depending on his companys budget for bonus. For example, he should give 1% of corporate profits plus 3% of regional profits. In this way even if the companys overall profit went down due to poor performance of a particular region, a mangers bonus would be affected only by the percentage allocated to corporate profit. He can still enjoy the percentage of his divisions profit which is normally should have performed well. other factor to determine the compensation would be the companys strategic goals and managers performance in achieving these goals. In order to motivate employees to exceed the expected revenues in profit plan, Jacques should give a higher percentage of the value by which the manager surpasses the expected profit. This would keep the manager motivated in undertaking the thought-provoking opportunities to contribute to the companys growth.