Delight Eats Inc. was founded in December of 2000 in Toronto, Ontar...

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Delight Eats Inc. was founded in December of 2000 in Toronto, Ontario, by brothers Peter and Simon Pollon. Delight Eats is famous for its made-to-order specialty sandwiches. Both brothers are proud of their Italian heritage and feel that this is reflected well in their current menu (Appendix I). Their business is based on the core values of providing healthy sandwiches made with fresh local ingredients, in a family- friendly environment. Recently, a large national chain opened up near Delight Eats. This competitor offers a typical sandwich menu of meatball, cold cut, BLT (bacon, lettuce and tomato), tuna, chicken and steak. All menu items are standardized to the franchise recipes. The opening of the national chain has the brothers concerned, and they want to ensure they are proactive in addressing this. To stand apart from the competition and to increase their customer base, the brothers want to expand their product line. Delight Eats has limited space, however, and therefore cannot have more people working than currently do (Appendix III). Simon is not sure if there is enough capacity to add both expansion proposals. The brothers are not interested in changing locations, so the labour base must stay at its current level. Simon wants to ensure they consider which sandwiches add the most profit to their mix. You, are a management consultant who has been hired by the brothers to advise them on which path to take. Peter recently read a Canadian government study, which ranked Toronto as having the fastest-growing number of vegetarians in the country. Given the lack of vegetarian restaurants in Toronto, Peter feels it is important to expand the Delight Eats menu to include vegetarian sandwiches in order to meet this growing consumer demand toward healthier and more ethical eating. In order to expand the product line but keep true to their roots, Simon has developed a new sandwich called the Italian Brute. The Brute would be loaded with plenty of salami, capicola, pepperoni and three different types of cheese, and baked on focaccia bread. The bread and meat would all be sourced from local providers. He believes this new sandwich option will stand apart from that offered by the local competition and from Delight’s current menu options. The Brute would have 30% more calories and salt than Delight Eats’ other sandwiches and twice the amount of fat. It would be priced the Simone as the national chain sandwich. Appendix I shows the cost data of each sandwich option as supplied by Peter and Simon. Appendix II includes the sales projections related to the various menu options. The brothers used an average of the last two years of sales for their current menu projections and estimated the sales for the vegetarian and Italian Brute options. Peter and Simon are seeking your advice on how to maximize profitability, while at the Simone time remaining true to their core values. They would like you to provide them with a projection of the number of each sandwich they should make year. in the upcoming Appendix I Menu Choices: Existing and Proposed Menu options for 2016 Sandwich Existing sandwiches Veal Cutlet Chicken Cutlet Sirloin Steak Meatball Grilled Eggplant Selling Price per unit ($) 9.50 9.50 9.00 9.00 9.00 Direct materials cost per unit ($) Direct labour cost per unit ($) CM $ per unit 4.62 4.86 3.99 4.26 6.79 5.9 6.16 5.63 6.62 Proposed new options Avocado 9.00 Italian Brute 9.50 Hummus 9.00 Grilled Veggies 9.50 4.35 0.53 4.15 0.49 4.55 0.46 3.98 0.76 1.83 0.38 2.74 0.36 2.95 0.4 3.01 0.36 2.48 0.4 Appendix II Sales Forecasts and Preparation Time for 2016 Estimated demand (units) for 2016 Sandwich Veal Cutlet Chicken Cutlet Sirlion Steak Meatball Grilled Eggplant Avocado Italian Brute Hummus Grilled Veggies Projected demand 66,333 58,962 32,031 28,775 20,131 2,478 6,269 1,844 2,608 Preparation time Time Sandwich required(minutes) Time required per unit(hours) Veal Cutlet 2.75 Chicken Cutlet 2.54 Sirloin Steak 2.42 Meatball 3.96 Grilled Eggplant 1.98 Avocado 1.87 Italian Brute 2.07 Hummus 1.89 Grilled Veggies 2.08 Appendix III Employee Hours of Work 0.0458 0.0423 0.0403 0.0660 0.0330 0.0312 0.0345 0.0315 0.0347 Employee number 2015 Hours Weeks Total 2080 1820 1820 1040 750 500 8010 140 235 335 420 515 610 52 52 52 52 50 50 Totals While staff are scheduled to work (and are paid for) the hours outlined above, only 90% of worked hours are productive hours. The other 10% of hours are for cleanup, preparation, paid breaks, etc. No further staff can be added at this time due to space constraints in the stores. The shop is open 354 days a year (every day except 11 statutory holidays) between 10 a.m. and midnight. The stores do not offer a breakfast menu, and the brothers will not consider this as an option. Enclosed below is relevant production information prepared by Carla Small, CFO of ABC Brewery. Carla would like you to calculate the spoilage for the Pitching Department, separated by type of spoilage. Then, prepare a memo to Carla advising ABC brewery on the following: An explanation detailing the different type(s) of spoilage. The financial statement treatment needed for each type of spoilage. Make recommendations on actions that the company should take with respect to this contamination to prevent similar occurrences going forward. Not including Excel, your memo should not exceed two pages. Exhibit – ABC Brewery Ltd. Spoilage (Prepared by Carla Small) In October, it was found that some of the raw materials used in the production of specific batches of beer during the month were contaminated. This was the case for all four types of beer that had been processed during the third week in October. As a result, a portion of the work-in-progress during October was spoiled. Production data for October 20X3, for the Pitching Department, is as follows:  Total liters received from the Boiling Department – 411,143.  Total liters transferred to the Fermentation Department – 308,357. 
  Normal spoilage in the Pitching Department is 5% of volume. 
The following table provides the allocation of costs across the departments: 
 The following table provides the allocation of costs across the departments: 
 Materials 28% 72% Direct Labor 60% 20% 10% 10% Grain Processing and Boiling Pitching Fermentation Bottling and Packaging Variable Overhead 60% 20% 10% 10%  Average total costs for each case are: Materials
 Direct labor Variable overhead $19.68 $ 3.07 $ 1.01 Sarah Lame is the president and owner of Lame Consulting Inc., a market research company. The company provides various marketing research services including analysis of customer preferences, comparison of client products with competitor products and collection of survey data via telephone calls. The company’s mission statement is as follows: We provide leading-edge marketing research and analysis to enable our clients to compete more effectively. You have recently been hired as the company’s accountant and have met with Sarah to go over some of her concerns. Sarah is concerned that the company’s profit is no longer growing. She notes that some of the jobs, like the small market research contracts, are losing money. She would like to refocus the company efforts on jobs that provide more profit (Appendix I).Her sister- in-law runs an engineering firm and told her that ABC helped her company focus on the most profitable clients. She wonders if that would be a good fit for Lame Consulting. One way Sarah has thought she could free up some resources is by outsourcing the making of survey calls. Recently she has been questioning if this is one of the company’s core competencies and asked whether it would be best to hire an outside service provider. Some preliminary information on potential companies that could perform the calls is included in Appendix II. Lastly, one of the company’s sales representatives recently complained to Sarah about how his sales commissions are calculated. The sales representative argued that his sales commissions are penalized because overhead is allocated based on analyst hours only. He believes that sales representatives who bring in jobs involving collection of survey data receive commissions that are too high because their jobs require fewer analyst hours, hence bear too little overhead cost. Sarah would like you to evaluate the design of the job costing system. The current year’s budgeted costs and overhead allocation are provided in Appendix III. Sarah has asked you to draft a memo containing your analysis of the issues and your preliminary recommendations. Ignore any possible income tax effects. Appendix I
 Data for Three Recent Jobs Job data: Analyst hours Analyst salaries (average $25 per hour) Survey caller hours Survey caller wages ($15 per hour) Job profit: Revenue Direct costs: Analyst salaries Survey caller wages Overhead allocation ($70 per analyst hour) Profit before commission Sales commission @ 40% Pre-tax profit Job A 65 $1,625 0 $- $6,000 (1,625) - (4,550) (175) - $(175) Job B 45 $1,125 30 $450 $6,000 (1,125) (450) (3,150) 1,275 (510) $765 Job C 4 $100 540 $8,100 $15,000 (100) (8,100) (280) 6,520 (2,608) $3,912 Job A: Analysis of customer purchase data collected by an online retailer. This customer typically requests several studies per year. The sales representative for this job complained about the high overhead charge and its effect on the sales commission. Sarah is considering eliminating this client, as they are not making a profit. Job B: Employee satisfaction survey for a new customer, which is a retail company. Lame Consulting Ltd does not usually conduct employee satisfaction surveys, but the sales representative is hoping to sell additional services to this customer. Job C: Customer preferences survey for a food manufacturer. This is a recurring job, in which the client provided the survey questions and planned to perform its own analysis of the data. Therefore, the job required only a small amount of analyst time to review the survey results for possible data entry errors and to prepare the data for transmission to the client. Appendix II
 Notes on Possible Outsourcing of Survey Call Work Many companies currently offer survey call services. Cost estimates were obtained from two companies as follows. O’Connell Research O’Connell Research is a Canadian market research company that offers market research as well as mail, telephone and online survey services. For telephone surveys, O’Connell charges a flat set-up fee of $500 per survey plus $28 per hour for caller time. DFNC DFNC is a telephone survey company located in the Philippines. The company charges a flat set-up fee per survey plus an hourly rate for caller time. All fees are payable in Philippine Pesos. At current exchange rates, the set-up fee amounts to $200 Canadian dollars., and the hourly rate amounts to $16 Canadian dollars per hour. In recent years, the Canadian dollar has declined approximately 20% relative to the Philippine Peso. Appendix III Budgeted Cost Allocations Employee salaries and wages: President's salary Analyst salaries (16,000 hours @ $25) Sales representative commissions Survey caller wages (44,000 hours @ $15) Call centre supervisor salary Other general and administrative salaries Payroll taxes and employee benefits Telephone costs Rent, heat and lights Depreciation - office furniture and equipment Miscellaneous office expenses Allocate overhead based on analyst hours Overhead rate per analyst hour Notes Direct costs 1 400,000 2 140,000 3 660,000 4 Overhead 150,000 70,000 180,000 480,000 59,000 50,000 40,000 91,000 1,120,000 16,000 $70.00 5 6 7 8 9 1,200,000 Notes: 1.Analysts receive a flat salary of $52,000 per year, which averages $25 per hour. Their time and cost is traced to individual jobs. Analysts are rarely idle and the company is able to adjust staff volumes to the level of work on hand. 
 2.Sales representatives locate clients, sell market research services, negotiate the price for each job and coordinate the work with analyst(s). Sales representatives receive commissions based on 40% of the pre-tax profit for their jobs (see Appendix I). 
 3.Survey callers work as needed to conduct telephone surveys. They are paid $15 per hour and trace their time to individual jobs. 60 surveys were completed in the year. 
 4.The supervisor manages the work of the survey callers and is paid a flat salary. 
 5.Payroll taxes and employee benefits average 30% of salaries and wages. 
 6.Telephone costs include approximately $5,000 per year for basic local and long distance telephone services for the office, plus approximately $54,000 per year for the call center. 
 7.Rent, heat and lights are for the entire office space. Approximately 30% of the space is used by analysts, 50% by the call center and 20% by general administration. The call center space could easily be subleased to another company in the same building that would like to expand at the same rate. 
 8.Of the depreciation for office furniture and equipment, approximately 30% relates to the analysts, 40% to the call center and 30% to general administration. Assets used by the call center could be sold for $1,000. 
 9.Miscellaneous office expenses include items such as office supplies, insurance, etc. 
 Overhead costs include all costs that are not traced directly to jobs. Overhead is allocated to jobs based on number of analyst hours, using a predetermined rate based on the annual budget ($70 per hour for the current year). Appendix I: Data for Three Recent Jobs Job data: Analyst hours Analyst salaries (average $25 per hour) Survey caller hours Survey caller wages ($15 per hour) Job profit: Revenue Direct costs: Analyst salaries Survey caller wages Overhead allocation ($70 per analyst hour) Profit before commission Sales commission @ 40% Pre-taxprofit Job A 65 1.625 0 Job B 45 1.125 30 Job C 4 $ $ $ $ $ $ $ $ 100 8.100 15.000 (100) (8.100) (280) 6.520 (2.608) 3.912 6.000 $ (1.625) - (4.550) (175) - (175) $ 6.000 $ (1.125) (450) (3.150) 1.275 (510) 765 $ - 450 540 Appendix III: Budgeted Cost Allocations Employee salaries and wages: President's salary Analyst salaries (16,000 hours @ $25) Sales representative commissions Survey caller wages (44,000 hours @ $15) Call centre supervisor salary Other general and administrative salaries Payroll taxes and employee benefits Telephone costs Rent, heat and lights Depreciation - office furniture and equipment Miscellaneous office expenses Allocate overhead based on analyst hours Overhead rate per analyst hour Notes Direct costs 1 400.000 2 140.000 3 660.000 4 Overhead 150.000 70.000 180.000 480.000 59.000 50.000 40.000 91.000 1.120.000 16.000 70,00 per analyst hour 5 6 7 8 9 1.200.000 $

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